tamilnadu state finances - finance commission...table 3.5 share of tamil nadu in central taxes and...

TAMILNADU STATE FINANCES

Prof.K.R.Shanmugam1

Dr.G.S.Ganesh Prasad2

Dr. L. Venkatachalam3

Report Submitted to

The Fourteenth Finance Commission,

New Delhi

MADRAS INSTITUTE OF DEVELOPMENT STUDIES Chennai – 600 020, INDIA

December 2014

1 Director, Madras School of Economics

2 Assistant Professor, MIDS and Project Director

3 Associate Professor, MIDS

2

CONTENTS

Title Page No.

List of Tables 4

List of Charts 5

Chapter 1 Introduction 6-10

1.1 Introduction 6

1.2 Macro-economic Environment 6

1.3 A Note on Vertical Transfers 8

1.4 A Note on Central Tax Buoyancy 9

1.5 Plan of the Report 10

Chapter 2 Tamil Nadu Economy: An Overview 11-16

2.1 Growth Performance 11

2.2 Sectoral Growth Pattern 12

2.3 Structure of GSDP 14

2.4 Interstate Comparison 15

2.5 Concluding Remarks 16

Chapter 3 Fiscal Trends: An Overview 17-26

3.1 Key Fiscal Indicators 17

3.2 Trend and Composition of Revenue Receipts 20



Chapter 4 Tax Performance 27-30

4.1 Composition of Own Tax Revenue 27

4.2 Own Tax Buoyancy 28



3

Chapter 5 Growth and Composition of Expenditure 31-37

5.1 Composition of Budget Expenditure 31

5.2 Trend and Composition of Revenue Expenditure 31

5.3 Debt Portfolio of Tamil Nadu Government 36



Chapter 6 A Note on Public Sector Enterprises 38-39

6.1 Electric Utility Sector 38

6.2 State Road Transport Utility 39

Chapter 7 Rural and Urban Local Bodies in Tamilnadu 40-50

7.1 Introduction 40

7.2 Highlights of State Finance Commission Recommendations – 41

Tamilnadu

7.3 Assigned Revenues 44

7.4 Pooled Assigned Revenue from 2007-08 47

7.5 Urban Local Bodies 48

7.6 Central Finance Commissions: 49

Chapter 8 Conclusion 51-52

4

LIST OF TABLES

Table 1.1 Transfers Relative to Centre’s Gross Revenue Receipts and GDPmp

Table 1.2 Buoyancy: Central and State Taxes

Table 1.3 Cesses and Surcharges

Table: 2.1 Annual Growth Rates: Sector-wise Performances at 2004-05 Prices

Table 2.3 Share of GSDP (GDP) in Tamil Nadu (India) at 2004-05 Prices

Table 2.4 9 Year Average Annual Growth of GSDP and Sectors of Major States

(2005-06 to 2013-14) in 2004-05 prices

Table 3.1 Tamil Nadu State Finances: Selected Fiscal Aggregates (Rs.crore)

Table 3.2 Tamil Nadu State Finances: Selected Fiscal Aggregates (%)

Table 3.3 Composition of Revenue Receipts (%)

Table 3.4 Structure of Own Not-Tax Revenues in Tamil Nadu (%)

Table 3.5 Share of Tamil Nadu in Central Taxes and Finance Commission Grants

Table 3.6 Composition of Central Grants to Tamil Nadu

Table 3.7 Revenue Receipts in Selected States in 2012-13 RE

Table 3.8 Composition of Revenue Receipts in Selected States in India (2012-13RE)

Table: 4.1 Composition of Tax Revenues

Table: 4.2 Own Tax Revenues in Tamil Nadu: 2004-05 to 2013-14

Table: 4.3 Composition of Own Tax Revenues in Major Indian States (2012-13 RE)

Table: 5.1 Composition of Budget Expenditure

Table: 5.2 Revenue Expenditures: Development Vs Non Development Expenditures

Table: 5.3 Composition of Revenue Expenditures

Table: 5.4 Compensation to LBs in Selective Indian States: 2012-13RE

Table: 5.5 Economic Classification of Revenue Expenditures

Table: 5.6 Composition of Debt Portfolio of Tamil Nadu Government (2013-14RE)

Table: 5.7 Composition of Revenue Expenditure in Major States (2012-13RE)

Table 7.1 First State Finance Commission Grant

Table 7.2 Second State Finance Commission Grant

Table 7.3 Third State Finance Commission Grant

Table 7.4 Assigned Revenues: Local Cess and Local Cess Surcharge

Table 7.5 Assigned Revenues: Surcharge on Stamp Duty

Table 7.6 Assigned Revenues : Entertainment Tax

Table 7.7 Assigned Revenues : Lease amount derived from Mines and Minerals

Table 7.8 Assigned Revenues : Social Forestry

Table 7.9 Pooled Assigned Revenue: Sources of Fund

Table 7.10 Funds Flow mechanism in ULBs in Tamilnadu (Amount in Crores) Table 7.11 Tenth Central Finance Commission Grant

Table 7.12 Eleventh Central Finance Commission Grant

Table 7.13 Twelfth Central Finance Commission Grant

5

LIST OF CHARTS

Chart 1.1 Trend and Actual Growth Rates of GDP (2004-05 base series)

Chart 2.1 Growth Rate of Tamil Nadu GSDP and the Overall GDP Growth

Chart 2.2 Sectoral Growth in Tamil Nadu

Chart 3.1 Share of Own Revenues and Central Transfers (%)

Chart 5.1 Composition of Revenue Expenditures (%)

Chart 5.2 Interest Payment and Grants to Local Bodies as Percent of GSDP

6

Chapter 1

Introduction

1.1. Introduction

In general, the fiscal profiles of the States have improved since 2010-11. While the fiscal

deficit of all States put together decreased from 2.8 percent in 2009-10 to 2.1 percent of

GDP at current market prices (2004-05 series) in 2013-14BE, the revenue surplus of all

States put together increased to 0.4 percent of GDP. Outstanding liabilities of State

governments (at the consolidated level) as a proportion of GDP declined since 2004-054,

but the pace of reduction slowed down considerably in 2013-14, reflecting the impact of

deceleration in nominal GDP growth (RBI, 2014)5. The slowdown in growth momentum

could affect the revenue raising capacity of States, with adverse implications for

incremental debt and debt servicing capacity of some States. However, the severity of the

impact would vary based on their tax bases, expenditure efficiency etc.

In addition, some of the recent policy initiatives (restructuring of Centrally Sponsored

Schemes, Food Security Act 2013 etc.) of the Central government would entail additional

responsibility at State level. As a result, the finances of the States are not only being

shaped by their own policies but also by the policies of the Central Government. Revenue

raising prospects of State Governments in the medium-term would also be influenced by

the proposed goods and services tax (GST).

Against this backdrop, this study reviews the finances of Tamil Nadu State Government

since 2002. Specifically, this study reviews and analyzes the following:

(i) the overall trends in revenues, expenditures and fiscal balances;

(ii) the trends in the level and composition of revenue receipts and expenditures;

(iii) the composition and trends in own tax and own non tax revenues;

(iv) the trends and composition of capital receipts and expenditures; and

(v) the ways of improving financial performances of Tamil Nadu Government.

In making the above analysis, this study compares the financial performance and tax

structure of Tamil Nadu with those of the major State Governments in India. On the basis

of the results of the analysis, this study provides suggestions for improving the financial

performance of Government of Tamil Nadu.

1.2 Macro-economic Environment

The performance of the Indian economy over the past two years (4.47 percent in 2012-13

and 4.86 percent in 2013-14) has been disappointing. The last time the Indian economy

4 It reflects the combined impact of favorable macroeconomic conditions and fiscal consolidation at

the state level, complemented by debt relief and interest relief provided by the centre. 5 Reserve Bank of India (2014), State Finances A Study of Budgets of 2013-14, Jan 2014.

7

has gone through a slowdown in the GDP (factor cost) growth was in the early years of

the current century (i.e., last decade). At that time, the average GDP growth in real terms

for the three years (2000-01 to 2003-03) was 4.47 percent, which was three percentage

points below the trend growth rate, estimated using HP Filter (Chart 1.1). The estimated

GDP growth rates for 2012-13 and 2013-14 are about 4.5 percentage points less than the

preceding peak growth rate of 9.57 percent in 2007-08.

The quick estimates for 2013-14 place the growth rate of GDP at 4.86 percent. This is

well below the trend growth rate. The trend growth rate continuously increased from 4.89

percent in 1981-82 to 7.76 in 2007-08. After that it has been continuously declining and it

is estimated at 6.02 in 2013-14. This down turn in the overall economic condition of the

nation is the major concern.

The Fourteenth Finance Commission needs to take into account this downturn in the

economy while making its projections for the award period. This sudden economic

downturn, however, may provide an opportunity for the Finance Commission to revise its

methodology in order to make more appropriate fiscal projections, which will enable a

more appropriate and just distribution between the Union and the States of the net

proceeds of taxes, allocation amongst the States of such proceeds and recommendations

on grants to the States.

Chart 1.1: Trend and Actual Growth Rates of GDP (2004-05 base series) (% per year)

5.6

2.9

7.9

4.3

3.5

10.2

6.1

1.4

5.4

6.4

7.3

8.0

4.3

6.7

8.0

4.1

5.4

3.9

8.0

7.1

9.3

6.7

8.68.9

4.9

4.24.0

5.3

5.7

9.5 9.6

6.7

4.5

0

2

4

6

8

10

12

1981-8

2

1982-8

3

1983-8

4

1984-8

5

1985-8

6

1986-8

7

1987-8

8

1988-8

9

1989-9

0

1990-9

1

1991-9

2

1992-9

3

1993-9

4

1994-9

5

1995-9

6

1996-9

7

1997-9

8

1998-9

9

1999-0

0

2000-0

1

2001-0

2

2002-0

3

2003-0

4

2004-0

5

2005-0

6

2006-0

7

2007-0

8

2008-0

9

2009-1

0

2010-1

1

2011-1

2

2012-1

3

2013-1

4

The revised methodology needs to maintain the essential balance between the principles

of fiscal autonomy, efficiency and equity. That is, it needs to resolve the vertical and

horizontal imbalances in resources consistent with the Constitutional assignment of

responsibilities to the two tiers of the Government and encourage efficiency and resolve

8

deficiencies in fiscal capacities of individual States without giving an incentive to lower

revenue effort.

1.3. A Note on Vertical Transfers

Table 1.1 shows the trends in vertical transfers, that is the sharing of resources between

the Centre and the States (taken as a group). Total transfers (tax devolution plus grants) to

the States declined a peak of close to 40 percent of Centre’s gross revenue receipts to just

above 35 percent during the award period of the Tenth and Eleventh Finance

Commissions. In the award period of the Twelfth Finance Commission, it increased to

37.2 percent. There is also indication that the transfers to the States in the first three years

of the award period of Thirteenth Finance Commission has increased further. But there is

a possibility that this trend may be reversed as the Central tax buoyancy as well as the

GDP growth rate have fallen significantly in the recent years.

Table 1.1: Transfers Relative to Centre’s Gross Revenue Receipts and GDPmp (Rs. Crore)

Finance

Commi-

ssions

Years

Share in

Central

Taxes

Total

Grants

Total

Transfers

Centre's

Gross

Revenue

Receipts

Transfers as per

cent of

CGRR GDP

Eighth 1984-85 5777 5053 10830 29327 36.93 4.22

1985-86 7491 6555 14047 35535 39.53 4.85

1986-87 8474 7041 15516 41424 37.46 4.79

1987-88 9598 8641 18239 46628 39.12 4.95

1988-89 10669 9704 20373 54261 37.55 4.66

Ninth 1989-90 13232 8573 21805 65329 33.38 4.34

1990-91 14535 12384 26920 69531 38.72 4.59

1991-92 17197 15327 32524 83227 39.08 4.83

1992-93 20522 17636 38158 94639 40.32 4.93

1993-94 22240 21223 43463 98024 44.34 4.88

1994-95 24843 20194 45037 116160 38.77 4.31

Tenth 1995-96 29285 20744 50029 139269 35.92 4.08

1996-97 36061 23336 59397 162218 36.62 4.18

1997-98 43548 25164 68711 177095 38.80 4.37

1998-99 39145 24214 63359 188586 33.60 3.51

1999-00 43481 31022 74503 224754 33.15 3.68

Eleventh 2000-01 51944 37431 89375 244686 36.53 4.10

2001-02 53398 42936 96335 255011 37.78 4.09

2002-03 56480 42560 99041 288694 34.31 3.90

2003-04 67366 49977 117344 332149 35.33 4.13

2004-05 80159 57168 137326 384851 35.68 4.24

Twelfth 2005-06 95887 77480 173367 443890 39.06 4.69

2006-07 122331 95793 218124 556423 39.20 5.08

2007-08 153600 10724 164324 694690 23.65 3.29

2008-09 161979 126944 288923 699033 41.33 5.13

2009-10 167992 150382 318374 734467 43.35 4.91

9

Finance

Commi-

ssions

Years

Share in

Central

Taxes

Total

Grants

Total

Transfers

Centre's

Gross

Revenue

Receipts

Transfers as per

cent of

CGRR GDP

Thirteenth 2010-11 223203 169398 392601 1007013 38.99 5.04

2011-12RE 259412 226992 486404 1021874 47.60 5.42

2012-13BE 306541 267936 574477 1236716 46.45 5.73

Commission Period Averages Eighth 38.11 4.70

Ninth 39.10 4.65

Tenth 35.62 3.97

Eleventh 35.92 4.09

Twelfth 37.32 4.62

Thirteenth 44.35 5.40

Source (Basic Data): Indian Public Finance Statistics (Various years); CGRR-Centre’s Gross Revenue

Receipts; RE-Revised Estimates; BE-Budget Estimates.

1.4. A Note on Central Tax Buoyancy

Table 1.2 shows the Central tax buoyancy (as well as States tax buoyancy). The Central

taxes buoyancy was 1.36 during 2000-01 to 2007-08 and declined to 0.855 during 2008-

09 to 2012-13. During the same periods, the States’ own taxes buoyancy increased

marginally from 1.17 to 1.3. As the Central taxes buoyancy has eroded in recent years

there may be a possibility that the States’ share of Central taxes will decline. This is

clearly an area of concern for the States.

Table 1.2: Buoyancy: Central and State Taxes

Central/State

Taxes 1960-61 to

1969-70

1970-71 to

1979-80

1980-81 to

1989-90

1990-91 to

1999-00

2000-01 to

2007-08

2008-09 to

2012-13

2000-01 to

2010-11

Gross

Central

Taxes

Direct 1.31 1.44 0.91 1.36 1.948 0.836 1.61

Indirect 1.69 1.75 1.14 0.70 0.968 0.911 0.82

Total 1.56 1.66 1.09 0.86 1.363 0.855 1.15

Central

Taxes

(Net)

Direct 1.29 1.42 0.81 1.46 2.046 0.748 1.64

Indirect 1.64 1.57 1.20 0.69 0.917 0.899 0.79

Total 1.53 1.52 1.12 0.86 1.355 0.809 1.12

States

Own

Taxes

Direct 0.41 0.81 1.08 0.66 1.015 1.097 1.13

Indirect 1.57 1.63 1.13 1.01 1.178 1.302 1.19

Total 1.36 1.55 1.13 1.00 1.173 1.297 1.19

States

Gross

Taxes

Direct 0.93 1.31 1.18 1.16 1.673 1.072 1.52

Indirect 1.66 1.87 1.08 0.95 1.168 1.217 1.14

Total 1.45 1.76 1.09 0.97 1.245 1.187 1.19 Source (Basic Data): Indian Public Finance Statistics (Various years)

Another area of concern is the increased contribution of cesses and surcharges to the

Centre’s gross revenue receipts over the years. While the Centre has been levying a

number of cesses and surcharges on both direct and indirect taxes, these are kept out of

10

the purview of sharing with the States under the recommendations of the Finance

Commission as provided in the 80th

Amendment.

Table 1.3 shows that the contribution of cesses and surcharges to Centre’s gross revenue

receipts progressively increased from 3 percent in 2000-01 to 11.5 percent in 2007-08.

After that it started declining and now it is around 8 percent.

Table 1.3: Cesses and Surcharges (Rs. Crore)

Year Cesses and Surcharges

Centre's

Gross Tax

Revenues

Cesses and Surcharges

as % of Centre's Gross

Tax Revenues Cesses Surcharges Total

2000-01 3467 2188 5655 188605 3.00

2001-02 3618 557 4175 187060 2.23

2002-03 5703 719 6423 215905 2.97

2003-04 6222 827 7049 254348 2.77

2004-05 10752 3336 14088 304957 4.62

2005-06 13749 4658 18407 366151 5.03

2006-07 18283 5382 23665 473513 5.00

2007-08 38551 29627 68178 593147 11.49

2008-09 27698 26035 53733 605298 8.88

2009-10 28521 12268 40788 624527 6.53

2010-11 39951 8592 48542 793072 6.12

2011-12 42825 15806 58630 889176 6.59

2012-13RE 54037 16054 70091 1038037 6.75

2013-14BE 61857 36109 97966 1235870 7.93

Source: Budgets of the Union Government (Various Issues)

1.5. Plan of the Report

Chapter 2 provides an overview of Tamil Nadu economy while Chapter 3 provides an

overview of fiscal trends in Tamil Nadu. Chapter 4 analyzes the tax performances of

Tamil Nadu and Chapter 5 reviews the growth and composition expenditures. Chapter 6

discusses about the performance of selective public sector utilities in Tamil Nadu while

the final Chapter 7 provides the concluding remarks.

11

Chapter 2

Tamil Nadu Economy: An Overview

This Chapter assesses the growth performance of Tamil Nadu, its sectoral growth pattern,

and compares the performance of Tamil Nadu economy with that of other major Indian

States.

2.1. Growth Performance

During 1982-83 to 2012-13, the long-term (average) growth of Tamil Nadu economy at

constant prices was 6.56 percent against the all India average growth of 6.25 percent (not

shown).6While both Tamil Nadu economy (4.97 percent) and Indian economy (4.98

percent) grew at almost the equivalent rate during 1982-83 to 1991-91, Tamil Nadu

economy grew at 5.83 percent, which was slightly less than the GDP growth of 6.12

percent during 1992-93 to 2001-02. During 2002-03 to 2012-13, the Tamil Nadu

economy grew at an average rate of 8.68 percent, which was about 1.2 percentage points

above the all India growth of 7.51 percent.

Like the Indian economy, the performance of Tamil Nadu economy over the past two

years (4.14 percent in 2012-13 and 6.12 percent in 2013-14) has been disappointing

(Table 2.1). The quick estimates for 2013-14 place the GSDP growth of Tamil Nadu at

6.1 percent. While it is slightly improved over the previous year, this is about 7

percentage points less than the preceding peak growth of 13.1 in 2010-11. This downturn

in the economic condition is a concern.

Chart 2.1 compares the GSDP growth of Tamil Nadu with GDP growth during 2005-06

to 2013-14. We can observe that growth rate of Tamil Nadu has been more than the GDP

growth in some years but the reverse is also true for some other years. Tamil Nadu’s

growth is highly volatile and more vulnerable to external shocks as compared to the all

India growth pattern due to increased globalization and structural changes in the

economy.

6. Up to 2004-05, the 1999-00 (base series) prices and after that 2004-05 prices are used.

12

Chart 2.1: Growth Rate of Tamil Nadu GSDP and the Overall GDP Growth (% per year)

6.1

4.1

7.4

10.8

15.2

14.0

6.15.5

13.1

4.9

4.56.7

8.6

9.5 9.6

9.3

6.7 8.9

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

GSDPTN GDPfc

2.2 Sectoral Growth Pattern

Table 2.1 (and Chart 2.2) provides a profile of sectoral growth rates and the overall

GSDP growth rate for the period from 2004-05 to 2013-14. All figures relate to the

GSDP at 2004-05 prices.

Chart 2.2: Sectoral Growth in Tamil Nadu (% per year)

-10.2

3.9

15.3

1.6

16.6

7.9

9.5

7.56.4

-2.3

-4.4

13.2

13.3

14.1

13.4

-2.1

5.4

6.6

20.9

8.3

5.5

7.6

12.86.9

10.69.3

14.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

Agriculture & Allied Industry Servcies

13

Table 2.1: Annual Growth Rates: Sector-wise Performances at 2004-05 Prices

Sectors/Sub-sectors 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 Avg. XI Plan

Last

2yrs.

GSDP (Tamil Nadu)

Agriculture & Allied 13.26 13.24 -4.41 -2.29 6.35 7.47 9.51 -10.22 7.93 4.54 3.32 -1.14

Agriculture 11.49 15.42 -4.69 -2.70 6.56 7.69 10.62 -12.04 8.93 4.59 3.50 -1.56

Industry 14.08 13.44 3.86 -2.06 20.93 15.32 6.60 5.38 1.61 8.79 8.93 3.49

Manufacture 15.11 18.75 0.59 -1.31 29.18 12.31 3.52 -1.31 3.53 8.93 8.86 1.11

Mining & Quarrying -4.86 4.36 1.17 -1.78 9.30 3.13 12.78 5.02 3.10 3.58 4.92 4.06

Construction 16.19 4.45 18.61 5.31 5.18 22.49 10.46 13.48 1.73 10.88 12.41 7.60

Services 14.02 16.57 9.33 10.56 6.90 12.80 7.57 5.51 8.26 10.17 9.43 6.88

Trade Hotels Restaurants 16.28 20.58 4.30 3.66 4.50 13.22 5.53 -0.22 4.47 8.04 6.24 2.12

Transport, Storage,

Communication 12.40 13.56 9.35 15.49 13.87 14.13 6.82 5.43 3.21 10.47 11.93 4.32

Real Estate, Ownership

of Dwellings 15.17 16.50 16.75 13.40 6.82 10.03 12.66 11.36 13.24 12.88 11.93 12.30

Banking and Insurance 17.55 19.09 17.11 10.18 2.97 14.65 10.52 10.52 14.00 12.95 11.09 12.26

Other Services 9.38 11.80 5.40 14.48 7.45 12.65 4.15 3.76 7.76 8.54 8.82 5.76

GSDP 13.96 15.21 6.13 5.45 10.83 13.12 7.42 4.14 6.13 9.15 8.59 5.14

Source (Basic Data): Central Statistical Organization, Government of India.

14

During 2005-06 to 2013-14, the agriculture and allied sector in Tamil Nadu grew at an

average rate of 4.54 percent (as against its growth of 3.96 percent at all India level). In

the Eleventh Plan period (2007-08 to 2011-12), this sector grew at 3.32 percent as it

recorded negative growth in the initial two years due to bad monsoons.7 In the initial two

years of Twelfth Plan period, this sector recorded an average negative growth (-1.14

percent) due to monsoon failure. Thus, there is an element of cyclicality in the growth

process of agriculture sector.

In the Eleventh Plan period, industry recorded an average growth rate of 8.93 percent.

After 2010-11, its growth continuously declined and reached just 1.6 percent in 2013-14.

The growth story of services sector is more or less similar to that of industry. While it

grew at an average rate of 9.43 percent in the Eleventh Plan period, it grew only at 6.88

percent in the last two years. Global slow down in 2011-12 and worldwide recession after

that year affected both industry and services sector in Tamil Nadu.

Chart 2.2 clearly indicates that all these three major sectors went through a recession after

2010-11, particularly industry. It also shows that the agriculture and allied sector and

industry growths are more volatile than services growth.

2.3 Structure of GSDP

Like in many other Indian States, the structure of gross state domestic product (GSDP) in

Tamil Nadu has been shifting away from agriculture towards non-agriculture, particularly

services. The share of agriculture and allied sector in total GSDP (in 1999-00 prices) of

Tamil Nadu in 1999-00 was about 17 percent and the shares of industry and services

sectors were 30 percent and 53 percent respectively (not shown). As indicated in Table

2.2, the share of agriculture and allied sector declined to about 11 percent in 2004-05 (at

2004-05 prices) and further to 7.4 percent in 2013-14. During 2004-05 to 2013-14, the

share of industry declined marginally from 31.6 percent to 30.3 percent and the

contribution of services sector increased from 57.2 percent to 62.3 percent.

Table 2.2: Share of GSDP (GDP) in Tamil Nadu (India) at 2004-05 Prices ( % )

Sectors/Sub-

Sectors 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Tamil Nadu

Agriculture &

Allied of which 11.1 11.1 10.9 9.8 9.1 8.7 8.3 8.4 7.3 7.4

Agriculture 9.6 9.4 9.4 8.5 7.8 7.5 7.1 7.4 6.2 6.4

Industry of

which 31.6 31.7 31.2 30.5 28.4 30.9 31.5 31.3 31.7 30.3

Manufacture 19.8 20.0 20.6 19.6 18.3 21.3 21.2 20.4 19.4 18.9

Mining &

Quarrying 0.7 0.6 0.6 0.5 0.5 0.5 0.5 0.5 0.5 0.5

7 In the initial two years of Tenth Plan (i.e., 2002-03 and 2003-04) also, this sector registered a

negative growth.

15

Sectors/Sub-

Sectors 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Construction 9.0 9.2 8.3 9.3 9.3 8.8 9.5 9.8 10.7 10.2

Services of

which 57.2 57.3 57.9 59.7 62.6 60.4 60.2 60.3 61.1 62.3

Trade, Hotels

and Restaurants 17.1 17.4 18.2 17.9 17.6 16.6 16.6 16.3 15.6 15.4

Transport,

Storage,

Communication

9.3 9.1 9.0 9.3 10.2 10.4 10.5 10.5 10.6 10.3

Real Estate,

Owner ship of

Dwellings

10.5 10.6 10.7 11.8 12.7 12.2 11.9 12.5 13.3 14.2

Banking and

Insurance 7.2 7.5 7.7 8.5 8.9 8.3 8.4 8.6 9.2 9.8

Other Services 13.2 12.6 12.3 12.2 13.2 12.8 12.8 12.4 12.3 12.5

GSDP 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0


2.4. Interstate Comparison

An interstate comparison reveals that Tamil Nadu ranks fifth in GSDP (in 2004-05

prices) growth among the major Indian states (Table 2.3). During 2005-14, its average

annual GSDP growth was 9.15 percent, which was higher than all India GDP growth of

7.62 percent and GSDP growth of any of the southern state. During the same period,

Uttarkhand ranked first with its GSDP growth of 12.8 percent. Interestingly, the poorer

state -Bihar recorded almost a double-digit growth during this period and obtained the

second rank. Tamil Nadu obtained 9th

rank in average rate of growth of agriculture and

allied sector during 2005-06 to 2013-14. It ranked 6th

in industrial growth, next only to

Uttarkhand, Bihar, Gujarat, Maharashtra, and Kerala. It also ranked 6th

in services sector

growth, next only to Uttarkhand, Haryana, Gujarat, Jharkhand, and Bihar.

Table 2.3: 9 Year Average Annual Growth of GSDP and Sectors of Major States

(2005-06 to 2013-14) in 2004-05 prices

States

Agriculture &

Allied Industry Services GSDP

Growth

(%) Rank

Growth

(%) Rank

Growth

(%) Rank

Growth

(%) Rank

Andhra Pradesh 5.11 7 7.88 10 9.73 10 8.21 8

Assam 3.65 12 2.84 20 8.21 20 5.79 20

Bihar 4.64 8 16.16 2 10.35 5 9.79 2

Chhattisgarh 6.65 3 6.56 13 9.92 9 7.66 12

Gujarat 5.36 4 9.58 3 11.45 3 9.75 3

Haryana 3.68 11 6.25 14 11.99 2 8.60 7

Himachal Prad. 4.47 10 7.75 11 10.00 8 7.79 10

Jammu& Kash. 1.91 18 3.74 19 8.89 16 5.81 19

Jharkhand 8.26 2 5.30 18 11.28 4 7.73 11

Karnataka 3.43 13 6.13 15 9.08 14 7.25 15

16

States

Agriculture &

Allied Industry Services GSDP

Growth

(%) Rank

Growth

(%) Rank

Growth

(%) Rank

Growth

(%) Rank

Kerala -0.52 20 8.98 5 9.63 11 8.07 9

Madhya Pradesh 9.56 1 8.08 8 8.73 18 8.69 6

Maharashtra 5.34 5 9.16 4 10.07 7 9.31 4

Orissa 2.75 15 8.04 9 9.25 13 7.47 14

Punjab 1.46 19 8.58 7 8.72 19 6.68 18

Rajasthan 5.27 6 6.79 12 9.39 12 7.55 13

Tamil Nadu 4.54 9 8.79 6 10.17 6 9.15 5

Uttar Pradesh 3.21 14 5.89 16 8.93 15 6.72 17

Uttarkhand 2.75 16 16.84 1 13.43 1 12.80 1

West Bengal 2.56 17 5.44 17 8.87 17 6.85 16

India 3.96 6.91 9.08 7.62


2.5. Concluding Remarks

As agriculture growth is highly volatile, its risk adjusted return may be very low and so

this sector may not be able to attract private investment. Given the fact that growth of this

sector is vital for food security in the state and for providing livelihood for more than 50

percent of population, the state needs to make necessary and sufficient investments in this

sector to ensure the growth. Manufacturing growth is also vital as it has the potential to

generate job opportunities.

17

Chapter 3

Fiscal Trends: An Overview

In this Chapter, we look at the overall fiscal trends in Tamil Nadu. Specifically we

examine the key fiscal indicators-expenditure, revenues, fiscal deficit, revenue deficit, etc

and trends and composition of revenue receipts. We also compare Tamil Nadu’s revenue

performance with that of other major Indian States.

3.1. Key Fiscal Indicators

Tamil Nadu has managed its finances in a fiscally prudent manner. Like all State

Governments in the country, Tamil Nadu had witnessed a serious deterioration in various

indicators of fiscal balance towards the end of the 1990s and in the early years of the

current century including large revenue and fiscal deficits relative to GSDP. But these

imbalances were brought under prudent limits in the framework of Fiscal Responsibility

and Budget Management Act (FRBMA), which was enacted in 2003, making Tamil

Nadu one of the first States to enact such legislation even prior to the recommendation of

the Twelfth Finance Commission. As a result, by 2005-06, the revenue account was

brought into surplus (Table 3.1).

Budget expenditure (revenue expenditure + capital expenditure) of Tamil Nadu as a ratio

of its GSDP stood around 14.4-16.4 percent from 2002-03 to 2014-15BE (Table 3.2).

Within this total, interestingly the ratio of capital expenditure went up. It relative to

GSDP increased from 1.36 percent to 2.78 percent. At the same time, the revenue

expenditure relative to GSDP declined from 15.01 percent to 13.49 percent. The revenue

receipts on the other hand increased from 12.17 percent to 13.52 percent. Growth rate

estimates show that during 2002-03 to 2014-15, the GSDP at current prices grew at the

annual rate of 15.33 percent. Since the economy was growing fairly fast, one could

expect an equally fast growth of government sector. As expected, revenue receipts in

current prices grew at 16.44 percent while the revenue expenditure at 14.46 percent.

18

Table 3.1: Tamil Nadu State Finances: Selected Fiscal Aggregates

(Rs. Crore)

Fiscal Indicators

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

2010-

11

2011-

12

2012-

13

2013-

14RE

2014-

15BE

Own Tax Revenues 14342 15945 19357 23326 27771 29619 33684 36547 47782 59517 71254 83363 91835

Own Non Tax Revenues 1861 2094 2208 2601 3423 3304 5712 5027 4651 5684 6554 7857 8084

State's Own Revenue 16202 18039 21565 25927 31194 32923 39397 41574 52434 65201 77809 91221 99919

Total Central Transfers 4634 5667 6886 8033 9720 14597 15646 14270 17754 20001 21019 25588 27470

Share in Central Taxes 3048 3544 4236 5013 6394 8065 8511 8756 10914 12715 14520 16486 19014

Grants 1587 2123 2650 3020 3326 6532 7135 5514 6840 7286 6499 9102 8456

Total Revenue Receipts 20837 23706 28452 33960 40913 47520 55042 55844 70188 85202 98828 116808 127390

Total Revenue Expenditure 25688 25271 29155 32009 38265 42975 53590 59375 72916 83838 97067 116564 127100

Capital Expenditure of which 2324 4600 5650 5094 8207 9244 11934 10863 14688 21819 19337 22662 26208

Capital Outlay 1628 3590 4564 4055 5952 7462 9104 8573 12436 16336 14568 19763 23685

Loans & Advances (Gross) 697 1011 1086 1040 2254 1782 2830 2291 2252 5483 4769 2899 2523

Recoveries of Loans ,Advances 433 575 783 892 1602 1013 1934 2587 770 3181 1058 775 204

Revenue Deficit@ 4851 1565 703 -1951 -2648 -4545 -1452 3531 2729 -1364 -1760 -244 -289

Fiscal Deficit 6742 5591 5570 2251 3956 3686 8548 11807 16647 17274 16519 21643 25714

Outstanding liabilities * 44470 51760 55970 63850 68560 73890 86150 101710 114470 130630 147416 165459 189256

GSDP at Current Prices# 171151 189782 219003 257833 310526 350819 401336 479733 584896 665312 744474 850319 942225

* At the end of March; # 2004-05 base series since 2004-05; before 2004-05 the growth rate of 1999-00 series was used to get the

comparable figures in respective years; @ minus sign means surplus Source (Basic Data): State Budget Documents of Tamil Nadu (Various Years); RE-Revised Estimates; BE-Budget Estimates. For GSDP, CSO website and for

outstanding liabilities, State Finances-A Study of Budget (various issues) of Reserve Bank of India.

19

Table 3.2: Tamil Nadu State Finances: Selected Fiscal Aggregates (%)

(Per cent of GSDP 2004-05 base series)

Fiscal Indicators

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

2010-

11

2011-

12

2012-

13

2013-

14RE

2014-

15 BE

Own Tax Revenues 8.38 8.40 8.84 9.05 8.94 8.44 8.39 7.62 8.17 8.95 9.57 9.80 9.75

Own Non Tax Revenues 1.09 1.10 1.01 1.01 1.10 0.94 1.42 1.05 0.80 0.85 0.88 0.92 0.86

State's Own Revenue 9.47 9.51 9.85 10.06 10.05 9.38 9.82 8.67 8.96 9.80 10.45 10.73 10.60

Total Central Transfers 2.71 2.99 3.14 3.12 3.13 4.16 3.90 2.97 3.04 3.01 2.82 3.01 2.92

Share in Central Taxes 1.78 1.87 1.93 1.94 2.06 2.30 2.12 1.83 1.87 1.91 1.95 1.94 2.02

Grants 0.93 1.12 1.21 1.17 1.07 1.86 1.78 1.15 1.17 1.10 0.87 1.07 0.90

Total Revenue Receipts 12.17 12.49 12.99 13.17 13.18 13.55 13.71 11.64 12.00 12.81 13.27 13.74 13.52

Total Revenue Expenditure 15.01 13.32 13.31 12.41 12.32 12.25 13.35 12.38 12.47 12.60 13.04 13.71 13.49

Capital Expenditure of which 1.36 2.42 2.58 1.98 2.64 2.63 2.97 2.26 2.51 3.28 2.60 2.67 2.78

Capital Outlay 0.95 1.89 2.08 1.57 1.92 2.13 2.27 1.79 2.13 2.46 1.96 2.32 2.51

Loans & Advances (Gross) 0.41 0.53 0.50 0.40 0.73 0.51 0.71 0.48 0.39 0.82 0.64 0.34 0.27

Recoveries of Loans & Advances 0.25 0.30 0.36 0.35 0.52 0.29 0.48 0.54 0.13 0.48 0.14 0.09 0.02

Revenue Deficit 2.83 0.82 0.32 -0.76 -0.85 -1.30 -0.36 0.74 0.47 -0.21 -0.24 -0.03 -0.03

Fiscal Deficit 3.94 2.95 2.54 0.87 1.27 1.05 2.13 2.46 2.85 2.60 2.22 2.55 2.73

Outstanding liabilities at end of March * 25.98 27.27 25.56 24.76 22.08 21.06 21.47 21.20 19.57 19.63 19.80 19.46 20.09

GSDP at Current Prices 100 100 100 100 100 100 100 100 100 100 100 100 100

Source: Computed using Table 3.1.

20

It is noticed that while revenue receipts-GSDP ratio increased continuously from 12.17

percent in 2002-03 to 13.71 percent in 2008-09, it suddenly declined to 11.64 percent in

2009-10 and 12 percent in 2010-11, registering about 2 percentage points fall over 2008-

09. This was mainly due to the fact that own revenues as percentage of GSDP declined

by 1 percentage point as a result of introduction of State VAT and central transfers

declined by 1 percent point due to the fall in central tax buoyancy and slow down of the

economy.

As indicated earlier, since 2005-06, the revenue account in Tamil Nadu showed surplus

except in two years: 2009-10 and 2010-11, with the erosion of central tax buoyancy and

economic downturn. However, in those years also, the revenue deficit was less than 1

percent of GSDP. The fiscal deficit (=net borrowing) relative to GSDP was kept below 3

percent since 2003-04. Interestingly, this borrowed amount was fully used for meeting

capital expenditure since 2005-06.

The outstanding liabilities (stock of public debt) relative GSDP was 27.27 percent in

2003-04. After this year, this ratio started decreasing and reached 19.57 percent in 2010-

11. Then it started increasing marginally and was slated to be 20.09 percent in 2014-

15BE. This is still an acceptable level as the Twelfth Finance Commission had suggested

an overall target of 28 percent for the states as whole. This is also well below the norms

prescribed by the Thirteen Finance Commission as well as the state’s FRBM Act, 2003.

3.2. Trends and Composition of Revenue Receipts

Own tax revenues constituted the largest single revenue source of Tamil Nadu. As per

20014-15 BE, own taxes constitute about 72 percent of total revenue receipts of the State.

Own non-tax accounts for 6.3 percent. While tax devolution (shared tax) contributes 14.9

percent, grants contribute 6.6 percent (Table 3.3). During 2001-03 to 2013-14, own

revenue (own tax + own non-tax) accounts for 74-78 percent of total revenues of the

State (except in two years: 2007-08 and 2008-09) while the fiscal transfers to Tamil Nadu

which comes from Finance Commission tax devolution and grants, Plan grants, and

grants under various centrally sponsored schemes, accounts for 22-26 percent (Chart 3.1).

Relative to GSDP, own revenues increased from 9.47 percent in 2002-03 to 9.82 percent

in 2008-09 (Table 3.2). After that, it declined to 8.67 in 2009-10, due to 0.8 percentage

point decline in own tax revenue and 0.4 percentage point decline in own non tax revenue

over the previous year. Then it started increasing and reached 10.73 percent in 2013-14.

During 2002-03 to 2013-14, the own tax revenue as a ratio of GSDP increased from 8.38

percent to 9.8 percent while own non-tax revenue declined marginally from 1.1 percent to

0.9 percent. It is noted that the slightly lower figure for own tax revenue (7.62 percent) in

2009-10 reflects the consensus of the revenue impact of introduction of State VAT.

21

Table 3.3: Composition of Revenue Receipts (%) Fiscal

Indicators

2002-

03

2003

-04

2004

-05

2005

-06

2006-

07

2007-

08

2008-

09

2009-

10

2010-

11

2011

-12

2012

-13

2013-

14RE

2014-

15BE

Own Tax 68.8 67.3 68.0 68.7 67.9 62.3 61.2 65.4 68.1 69.9 72.1 71.4 72.1

Own Non Tax 8.9 8.8 7.8 7.7 8.4 7.0 10.4 9.0 6.6 6.7 6.6 6.7 6.3

Own Revenue 77.8 76.1 75.8 76.3 76.2 69.3 71.6 74.4 74.7 76.5 78.7 78.1 78.4

Central

Transfers 22.2 23.9 24.2 23.7 23.8 30.7 28.4 25.6 25.3 23.5 21.3 21.9 21.6

Share in

Central Taxes 14.6 14.9 14.9 14.8 15.6 17.0 15.5 15.7 15.5 14.9 14.7 14.1 14.9

Grants 7.6 9.0 9.3 8.9 8.1 13.7 13.0 9.9 9.7 8.6 6.6 7.8 6.6

Total Revenue

Receipts 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

100.

0

100.

0 100.0 100.0

Source: Computed using Table 3.1.

It is noticed that the own non-tax revenue relative to GSDP is less than 1 percent.. Part of

the reason for low collection of non-tax revenue is that the State is not well endowed with

major minerals. Another reason is that some user charges (such as drinking water and

transport charges) do not go directly to the State’s treasury but are collected by the State

owned enterprises. There is some potential for the State to increase the non-tax revenues.

Table 3.4 shows the changing structure of non-tax revenues over time. The proportion of

revenues from economic services was 52 percent in 1990-91 (not shown). After that year,

it started declining and reached 33 percent in 2002-03. Then it continued to decline and

reached 17.9 in 2014-15 (Table 3.4). During 2002-03 to 2014-15, the share of almost all

economic services declined except the metallurgical industries. The possibilities of

raising fees and service charges in line with inflation need to be examined.

Chart 3.1: Share of Own Revenues and Central Transfers (%)

22

At the same time, the proportion of revenues for general services declined from 20.9

percent to 12.7. But the proportion of revenues from social services increased from 14.1

percent to 42 percent. This was due to the rise in the shares of (i) education, sports and

arts, (ii) medical and public health, and (iii) urban development. Efforts are needed to

increase shares of other social services. Interest receipts accounted for 30.6 percent of

total own non-tax revenues of the State in 2002-03. It increased to 37.6 percent in 2007-

08 and then it started declining and reached 27.1 percent in 2014-15.

As shown in Table 3.2, the transfers remained around 3-4 percent of the total revenues of

Tamil Nadu during 2002-03 to 20014-15. The shared tax is the second largest single

source of revenue of the State. Currently it forms approximately 15 percent of the total

receipts. The combined share of shared tax and grants is about 22 percent. It is however,

noted that the combined share of shared tax and grants was 32 percent in 1980-81 (not

shown). This decline is partly due to the changes in the successive Finance Commission’s

recommendations and modified Gadgil formula for allotting state plan assistance by the

Centre and partly as a result of State’s own effort in resource mobilization.

Table 3.4: Structure of Own Not-Tax Revenues in Tamil Nadu (%)

Sources 2002-

03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011-

12

2012

-13

2013

-14

2014

-15

Interest Receipts 30.6 25.4 25.6 30.7 32.3 37.6 25.7 35.8 35.8 35.6 30.7 26.1 27.1

Dividends and Profits 1.40 1.30 1.10 0.86 0.88 1.20 0.63 0.96 0.58 0.62 0.66 0.64 0.63

General Services 20.85 16.3 14.9 8.65 24.1 16.9 11.8 14.1 8.67 11.39 9.44 9.47 12.7

Pub.Serv. Commission 0.03 0.06 0.02 0.11 0.17 0.15 0.07 0.10 0.24 0.06 0.37 0.33 0.32

Police 3.10 1.92 1.85 2.32 1.48 2.50 2.32 1.91 1.97 2.38 2.48 2.29 2.24

Jails 0.06 0.06 0.06 0.07 0.05 0.05 0.02 0.03 0.03 0.03 0.04 0.03 0.03

Stationery & Printing 0.25 0.23 0.42 0.26 0.31 0.27 0.14 0.18 0.31 0.15 0.23 0.18 0.17

Public Works 0.47 0.56 0.59 0.50 0.39 0.65 0.26 0.39 0.58 0.25 0.23 0.25 0.25

Other Adm. Services 4.13 7.02 5.48 3.32 2.71 3.59 2.28 3.93 3.29 5.08 2.63 2.34 2.26

Other services 23.09 9.29 6.89 2.23 19.1 9.79 7.47 7.67 2.34 3.47 3.46 4.05 7.41

Social Services 14.06 22.8 21.3 17.2 15.2 16.7 10.4 26.4 29.5 27.82 36.5 43.9 41.7

Education, Sports, Art 4.81 5.85 6.49 8.07 6.31 9.12 5.30 7.63 11.2 8.50 11.5 21.8 19.9

Medical & Pub. Health 4.46 2.87 8.69 3.49 2.82 2.95 2.48 1.82 2.84 5.36 6.65 5.43 6.29

Family Welfare 0.04 0.30 0.08 1.38 1.29 0.00 0.46 0.58 0.69 1.00 1.07 0.72 0.79

Water Supply& San. 0.44 0.32 0.38 0.11 0.04 0.02 0.00 0.01 0.01 0.00 0.08 0.00 0.00

Housing 1.20 1.16 1.11 0.96 1.75 0.92 0.52 0.93 1.23 0.99 2.44 0.83 0.81

Urban Development 0.07 9.30 1.73 0.83 0.67 1.15 0.11 13.1 11.7 10.34 12.7 13.3 12.3

Information and

Publicity

0.25 0.37 0.15 0.24 0.17 0.16 0.16 0.54 0.08 0.10 0.12 0.11 0.10

Labour & Employment 1.18 1.13 1.16 1.08 1.14 1.10 0.72 0.76 0.88 0.76 1.26 0.95 0.92

Social Security,

Welfare

1.42 1.27 0.94 0.78 0.91 1.14 0.57 0.89 0.84 0.66 0.65 0.66 0.57

Other Social Services 0.18 0.20 0.55 0.21 0.10 0.13 0.10 0.10 0.11 0.11 0.08 0.08 0.08

Economic Services 33.13 34.2 37.1 42.7 27.6 27.6 51.5 22.8 25.5 24.60 22.7 19.9 17.9

Crop Husbandry 3.34 2.94 2.59 2.55 2.18 2.49 1.29 1.84 2.50 2.20 1.92 1.34 1.15

Animal Husbandry 0.34 0.31 0.32 0.29 0.21 0.22 0.14 0.17 0.16 0.13 0.13 0.11 0.10

Dairy Development 0.13 0.07 0.07 0.07 0.04 0.04 0.03 0.03 0.04 0.03 0.06 0.02 0.02

Fisheries 0.68 0.63 0.58 0.67 0.53 0.64 0.34 0.09 0.12 0.14 0.16 0.10 0.07

23

Sources 2002-

03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011-

12

2012

-13

2013

-14

2014

-15

Forestry and Wild Life 8.46 4.31 7.02 5.33 2.40 1.40 1.45 1.73 2.99 1.86 1.43 1.86 0.55

Cooperation 0.99 0.83 0.85 1.14 0.42 0.51 0.33 0.42 0.42 0.34 0.31 0.23 0.22

Other Agri. Programs 0.99 0.86 0.89 0.77 0.68 0.68 0.42 0.60 0.62 0.47 0.42 0.39 0.36

Major and Medium irri. 0.59 0.81 1.06 0.75 1.00 0.58 0.45 0.66 0.57 0.44 0.39 0.46 0.33

Minor Irrigation 0.17 0.33 0.16 0.08 0.05 0.05 0.13 0.03 0.04 0.03 0.02 0.02 0.02

Village & Small ind. 1.93 0.87 0.75 0.78 1.51 0.46 0.15 0.18 0.59 0.33 0.47 0.35 0.12

Industries 0.01 0.01 0.02 0.01 0.00 0.01 35.8 3.01 0.68 0.01 0.51 0.00 0.00

Metallurgical Industries 9.73 18.0 18.6 17.9 16.6 17.6 9.23 12.2 14.5 16.6 14.2 13.6 13.5

Ports and Light Houses 0.00 0.00 0.00 0.00 0.00 0.03 0.00 0.05 0.10 0.08 0.08 0.06 0.06

Roads & Bridges 1.43 1.17 1.71 1.39 0.96 1.21 0.80 1.22 1.40 1.09 1.26 0.50 0.78

Inland Water Transport 0.13 0.20 0.10 0.07 0.08 0.07 0.04 0.05 0.04 0.04 0.01 0.01 0.01

Tourism 0.06 0.14 0.61 1.35 0.45 0.69 0.45 0.06 0.03 0.01 0.02 0.03 0.02

Civil Supplies 0.12 0.07 0.14 0.37 0.08 0.09 0.09 0.08 0.14 0.09 0.07 0.05 0.05

Others 4.08 2.82 2.03 9.32 0.56 0.85 0.33 0.44 0.50 0.69 1.29 0.78 0.47

Non-Tax Revenues 100.0 100 100 100 100 100 100 100 100 100 100 100 100

Source (Basic Data): State Budget Documents of Tamil Nadu (Various Years)

Table 3.5 shows Tamil Nadu’s share in Central gross taxes as well as grants

recommended by various Finance Commissions. Tamil Nadu has been getting a lower

and lower share of transfers from the Centre. The Thirteenth Finance Commission has

recommended Tamil Nadu’s share in total divisible pool of Central taxes at 4.969 percent

(5.047 percent in the case of service tax) as against the share of 5.305 percent

recommended by the Twelfth Finance Commission. However, the Thirteenth Finance

Commission has recommended a total grant of Rs. 11366.9 crore for the five year period

for maintenance roads and bridges, improving delivery of justice, issuing UIDS, forests,

water sector, elementary education etc.

Table 3.5: Share of Tamil Nadu in Central Taxes and Finance Commission Grants (%)

Finance Commissions Share in Central Taxes Share in FC Grants

Third 7.48 4.92

Fourth 7.9 4.86

Fifth 7.56 3.21

Sixth 7.59 0

Seventh 7.68 1.69

Eighth 6.85 0.58

Ninth (1) 7.12 1.74

Ninth (2) 6.84 1.05

Tenth 6.12 3.64

Eleventh 5.39 2.28

Twelfth 5.31 2.9

Thirteenth 4.98 4.396

Source (Basic Data): Vithal and Sastry (2001) for data up to Tenth Finance Commission and Reports of the

Eleventh, Twelfth and Thirteenth Finance Commissions thereafter.

24

Table 3.6 shows the composition of central grants to Tamil Nadu from 2002-03 to

2014-15. While the plan grants increased from Rs. 1132 crore in 2002-03 to Rs. 5486

crore in 2014-15, the non plan grants increased from Rs. 455 crore to Rs. 2971 crore.

During this period, the plan grants increased at an average annual rate of 15.8 percent

while the non-plan increased at 38.6 percent. Of plan grants, the state plan grant grew at

18.45 percent per annum while the CSS grew at 15.48 percent per annum. The central

plan grants increased at 13.2 percent per annum.

It is also noted that in absolute term, total grants increased from Rs.1587 crore to Rs.

8456 crore during 2002-03 to 2014-15 registering an average rate of growth of 18.2

percent per annum.

Table 3.6: Composition of Central Grants to Tamil Nadu Type of

Grants

2002-

03

2003

-04

2004-

05

2005

-06

2006

-07

2007-

08

2008

-09

2009-

10

2010

-11

2011-

12

2012-

13

2013

-14

2014-

15

Rs. Crore

Non Plan

Grants

455 532 961 1394 932 3463 2626 1800 2813 2585 1311 3253 2971

Plan Grants

of which

1132 1591 1689 1627 2393 3069 4509 3714 4027 4701 5188 5849 5486

State Plan

Schemes

602 936 1054 882 1678 2166 3378 2253 2142 2562 2765 3096 2884

Central Plan

Schemes.

66 57 73 67 88 81 101 130 158 223 224 324 220

Centrally

Sponsored

Schemes

463 597 562 677 627 822 1030 1331 1727 1916 2199 2429 2381

Grants from

Centre

1587 2123 2650 3020 3326 6532 7135 5514 6840 7286 6499 9102 8456

Percentages

Non Plan

Grants

28.7 25.1 36.3 46.1 28.0 53.0 36.8 32.6 41.1 35.5 20.2 35.7 35.1

Plan Grants

of which

71.3 74.9 63.7 53.9 72.0 47.0 63.2 67.4 58.9 64.5 79.8 64.3 64.9

State Plan

Schemes

38.0 44.1 39.8 29.2 50.5 33.2 47.3 40.9 31.3 35.2 42.5 34.0 34.1

Central Plan

Schemes.

4.2 2.7 2.7 2.2 2.6 1.2 1.4 2.4 2.3 3.1 3.4 3.6 2.6

Centrally

Sponsored

Schemes

29.2 28.1 21.2 22.4 18.9 12.6 14.4 24.1 25.3 26.3 33.8 26.7 28.2

Grants from

Centre

100.0 100.0 100.0 100 100 100.0 100 100.0 100 100.0 100.0 100 100.0


3.3 Interstate Comparison

Tamil Nadu’s revenue performance compares well with those of other major States in the

country. In 2012-13 RE, per capita own tax revenue of Tamil Nadu at Rs. 10801 was the

highest among major Indian States. That is it obtained 1st rank in terms of per capita own

tax revenue (Table 3.7). In respect of own tax revenue as percent of GSDP, Tamil Nadu

occupied second rank, next only to Karnataka.

25

Tamil Nadu also ranked second in terms per capita revenue receipts, next only to

Himachal Pradesh. However, it ranked 14th

in terms of revenue receipts-GSDP ratio. In

terms of per capita own non tax revenues, Tamil Nadu compared poorly. It occupied 12th

rank in terms of per capita own non tax and ranked 14th

in terms of own non-tax revenue-

GSDP ratio.

Table 3.7: Revenue Receipts in Selected States in 2012-13 RE

States

Per capita (Rs.) As % of GSDP

Reven

ue

Own Tax

Revenue

Own

non tax

Revenue

Central

Transfer

s

Reven

ue

Own

Tax

Revenue

Own

non tax

Revenue

Central

Transfer

s

Andhra Pradesh 12742 7281 1497 3964 14.5 8.3 1.7 4.5

Assam 12284 2647 977 8660 27.0 5.8 2.2 19.1

Bihar 6682 1649 124 4909 21.2 5.2 0.4 15.6

Chhattisgarh 12433 5062 1865 5507 21.0 8.6 3.2 9.3

Gujarat 12577 8720 891 2966 11.3 7.8 0.8 2.7

Haryana 14493 9307 1865 3320 11.0 7.0 1.4 2.5

Himachal

Pradesh 24006 7214 2728 14064 22.7 6.8 2.6 13.3

Jharkhand 10057 2698 1194 6164 19.6 5.3 2.3 12.0

Karnataka 14058 8859 629 4570 16.2 10.2 0.7 5.3

Kerala 13814 9073 1276 3465 13.8 9.1 1.3 3.5

Madhya Pradesh 9690 3995 1015 4680 19.3 7.9 2.0 9.3

Maharashtra 12567 8738 962 2867 10.5 7.3 0.8 2.4

Orissa 10660 3578 1519 5562 17.9 6.0 2.5 9.3

Punjab 13179 8161 1650 3368 13.7 8.5 1.7 3.5

Rajasthan 9851 4345 1754 3752 14.9 6.6 2.7 5.7

Tamil Nadu 14944 10801 982 3161 13.7 9.9 0.9 2.9

Uttar Pradesh 7595 2931 669 3995 20.4 7.9 1.8 10.7

Uttarkhand 16929 5951 1493 9485 15.1 5.3 1.3 8.5

West Bengal 7935 3569 176 4191 11.6 5.2 0.3 6.1

Source (Basic Data): Reserve Banks of India, State Finance: A Study of State Budgets (various years).

As can be seen in Table 3.8, the share of own tax revenues in Tamil Nadu constitutes

about 72 percent of total revenues. This is the highest among the major Indian States. The

corresponding figures for Maharashtra, Gujarat and Kerala are 69.5 percent, 69.3 percent

and 65.7 percent. Tamil Nadu is the fourth lowest in terms of percentage share of non tax

revenues, next after Bihar, Karnataka and West Bengal.

It is also noticed from Table 3.7 that Tamil Nadu was the fourth lowest in terms of central

transfers as percentage of GSDP in 2012-13RE, next only to Maharashtra, Gujarat, and

Haryana. It also the lowest in terms of percentage share of grants and fifth lowest in

terms of percentage share of shared tax revenues.

26

Table 3.8: Composition of Revenue Receipts in Selected States in India (2012-13RE) (%)

States Own tax Own Non-tax Shared Tax Grants

Andhra Pradesh 57.1 11.7 18.5 12.6

Assam 21.5 8.0 27.9 42.6

Bihar 24.7 1.9 49.5 23.9

Chhattisgarh 40.7 15.0 23.1 21.2

Gujarat 69.3 7.1 12.1 11.4

Haryana 64.2 12.9 8.4 14.5

Himachal Prad. 30.1 11.4 13.9 44.7

Jharkhand 26.8 11.9 26.3 35.0

Karnataka 63.0 4.5 14.7 17.8

Kerala 65.7 9.2 14.2 10.9

Madhya Pradesh 41.2 10.5 30.0 18.3

Maharashtra 69.5 7.7 10.5 12.3

Orissa 33.6 14.3 29.6 22.6

Punjab 61.9 12.5 10.3 15.3

Rajasthan 44.1 17.8 25.0 13.1

Tamil Nadu 72.3 6.6 14.3 6.9

Uttar Pradesh 38.6 8.8 38.0 14.6

Uttarkhand 35.2 8.8 19.0 37.0

West Bengal 45.0 2.2 29.5 23.3


3.4 Concluding Remarks

This Chapter has briefly reviewed the overall fiscal trends in Tamil Nadu. Tamil Nadu’s

government finances has been well managed since 2005-06. The revenue account showed

surplus in almost all years except in two years. The fiscal deficit and outstanding

liabilities as a ratio of GSDP were kept below the norms prescribed in the FRBM Act,

2003. Tamil Nadu ranked 1st in terms of per capita own tax revenue among the major

Indian States. However, it ranked 12th

in terms of per capita non tax revenue. Therefore,

there is a potential for raising non tax revenues of the State. The major worry for the State

is that the State has been awarded a lower and lower share of central taxes by the

successive Finance Commissions.

27

Chapter 4

Tax Performance

In this Chapter, we assess the overall tax performance of Tamil Nadu in terms of the

annual growth and the buoyancy of various taxes, and composition of own tax revenues.

We also compare the tax performance of Tamil Nadu with that of other major States in

the country.

4.1. Composition of Own Tax revenues

As mentioned in the previous Chapter, own tax revenue is the largest single revenue

source of Tamil Nadu Government. During 2002-03 to 2014-15, the own tax revenues of

Tamil Nadu (in nominal terms) grew at average rate of 16.93 percent, which was slightly

higher than that of GSDP in the same period (15.33 percent). The own tax relative to

GSDP increased from 8.4 percent in 2002-03 to 9.75 percent in 2014-15.

Among the state taxes, sales tax (predominantly State VAT) is by far the most important

own tax revenue source (Table 4.1). The sales tax as percentage of GSDP was 5.8 percent

in 2003-04 and increased to 6.03 percent in 2005-06. After that it declined and reached

4.72 in 2009-10 due to introduction of State VAT and global slow down of the economy.

Then it started increasing and currently it is estimated to be 6.92 percent of GSDP (as per

2014-15BE).

Next comes state excise. Its relative importance has increased steadily over the years. Its

percentage share increased from 10.4 percent in 2003-04 to 18.5 percent in 2009-10.

After that it started declining and reached 7 percent level in 2014-15. This decrease in

state excise is due to abolition of vend fees and additional vend fees for malt liquors and

foreign liquors and sprits. The state excise relative to GSDP declined from 0.87 percent

to 0.69 percent during 2003-04 to 2014-14.

Table 4.1: Composition of Tax Revenues

Taxes 2003-

04

200

4-05

200

5-06

200

6-07

200

7-08

2008

-09

2009-

10

201

0-11

201

1-12

2012

-13

2013-

14Re

2014-

15BE

As % of Own Tax Revenues

Sales Tax 69.0 67.1 66.6 63.9 61.4 61.4 61.9 59.9 60.9 61.9 70.4 71.0

State Excise 10.4 13.1 13.6 14.3 16.1 17.0 18.5 17.0 16.8 17.0 7.0 7.1

Stamps Duties 8.2 8.3 9.0 10.9 12.8 11.3 10.0 9.8 11.1 10.8 11.0 11.4

Motor Vechile tax 5.8 5.2 4.9 4.6 5.0 5.1 5.5 5.5 5.3 5.5 5.5 5.6

Goods&Pass. Tax 3.8 4.0 4.2 4.5 3.7 2.9 3.0 3.4 3.6 3.1 3.4 3.4

Others 2.6 2.3 1.8 2.0 1.1 2.3 1.0 4.4 2.5 1.8 2.7 1.5

Own Tax Revenue 100 100 100 100 100 100 100 100 100 100 100 100

28

Taxes 2003-

04

200

4-05

200

5-06

200

6-07

200

7-08

2008

-09

2009-

10

201

0-11

201

1-12

2012

-13

2013-

14Re

2014-

15BE

As % of GSDP

Sales Tax 5.80 5.93 6.03 5.71 5.18 5.15 4.72 4.89 5.45 5.92 6.90 6.92

State Excise 0.87 1.16 1.23 1.28 1.36 1.43 1.41 1.39 1.50 1.63 0.69 0.69

Stamps Duties 0.69 0.73 0.81 0.97 1.08 0.95 0.76 0.80 0.99 1.03 1.08 1.11

Motor Vehicle

tax

0.49 0.46 0.44 0.41 0.42 0.43 0.42 0.45 0.47 0.53 0.54 0.55

Goods & Pass.

Tax

0.32 0.35 0.38 0.40 0.31 0.24 0.23 0.28 0.32 0.30 0.33 0.33

Others 0.22 0.20 0.16 0.18 0.09 0.19 0.08 0.36 0.22 0.17 0.26 0.15

Own Tax

Revenue

8.40 8.84 9.05 8.94 8.44 8.39 7.62 8.17 8.95 9.57 9.80 9.75

Source (Basic Data): State Budget Documents of Tamil Nadu (Various Years).

On the other hand, the share of stamps duty and registration increased from 8.2 percent to

11.4 percent. The stamp duty and registration as percentage of GSDP increased from 0.69

percent to 1.11 percent. The motor vehicle tax relative to GSDP also increased

marginally form 0.49 percent to 0.55 percent.

4.2 Own Tax Buoyancy

Table 4.2 shows the annual buoyancy and the growth rates of major taxes. In 2009-10 the

own tax buoyancy was 1.03 in 2003-04. It declined to 0.44 in 2009-10 due to decline in

the buoyance of almost all taxes. Then it increased to 1.79 in 2011-12 and again it

declined to 0.94 in 2014-15 due to economic downturn. It is noticed that the buoyancy of

almost all taxes except excise duty in 2014-15 are less than that in 2003-04.

Table 4.2: Own Tax Revenues in Tamil Nadu: 2004-05 to 2013-14

Taxes 2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

2010-

11

2011-

12

2012-

13

2013-

14Re

2014-

15BE

Annual Growth Rate (%)

Sales Tax 14.76 18.10 19.69 13.97 2.42 13.87 9.61 26.27 26.82 21.36 33.26 11.10

State Excise

-

21.60 53.82 24.62 25.49 19.51 20.81 17.12 20.40 22.91 21.56 -51.60 10.47

Stamps

Duties 21.99 21.87 29.95 43.77 26.93 -0.29 -3.47 26.99 41.50 16.18 20.62 13.54

Motor

Vehicle tax 25.30 8.61 10.86 12.08 17.63 15.26 18.43 31.38 16.58 26.68 16.66 12.31

Goods &

Pass. Tax 24.81 25.03 28.94 26.25 -11.74 -10.82 11.56 48.89 30.60 6.04 24.19 10.00

Other Taxes 30.02 1.73 -6.74 38.95 -43.71 146.70 -52.61 478.42 -31.56 -12.84 74.56 -33.86

Own Tax

Revenue 11.18 21.40 20.50 19.06 6.65 13.73 8.50 30.74 24.56 19.72 16.99 10.16

Tax Buoyancy

Sales Tax 1.36 1.18 1.11 0.68 0.19 0.96 0.49 1.20 1.95 1.80 2.34 1.03

State Excise -1.98 3.50 1.39 1.25 1.50 1.45 0.88 0.93 1.67 1.81 -3.63 0.97

29

Taxes 2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

2010-

11

2011-

12

2012-

13

2013-

14Re

2014-

15BE

Stamps

Duties 2.02 1.42 1.69 2.14 2.08 -0.02 -0.18 1.23 3.02 1.36 1.45 1.25

Motor

Vehicle tax 2.32 0.56 0.61 0.59 1.36 1.06 0.94 1.43 1.21 2.24 1.17 1.14

Goods &

Pass. Tax 2.28 1.63 1.63 1.28 -0.91 -0.75 0.59 2.23 2.23 0.51 1.70 0.93

Other Taxes 2.76 0.11 -0.38 1.91 -3.37 10.19 -2.69 21.82 -2.30 -1.08 5.24 -3.13

Own Tax

Revenue 1.03 1.39 1.16 0.93 0.51 0.95 0.44 1.40 1.79 1.66 1.20 0.94

Source (Basic Data): State Budget Documents of Tamil Nadu (Various Years); RE-Revised

Estimates; BE-Budget Estimates.

4.3 Interstate Comparisons

As can be seen in Table 4.3, Tamil Nadu ranks first in per capita sales tax revenue

(Rs. 6592) and second in sales tax revenue-GSDP ratio (6 percent), next only to Kerala

(6.6 percent) among the major States in the country. It is also interesting to note that the

state excise in Tami Nadu accounts for nearly 17 percent total own tax revenues, which is

the second largest among the major States next only to Karnataka (21.1 percent).

Table 4.3: Composition of Own Tax Revenues in Major Indian States (2012-13 RE)

States

Sales Tax Composition of Own tax Revenue (%)

Per Capita

(Rs.)

% of

GSDP

Sales

Tax

State

Excise

Stamps and

Reg. Fees

Motor

Vehicle Tax

Other

Taxes

Andhra Pradesh 4892 5.6 67.2 16.8 7.9 5.8 2.3

Assam 2002 4.4 75.6 6.7 2.3 3.9 11.4

Bihar 809 2.6 49.0 16.5 11.6 3.9 19.0

Chhattisgarh 2812 4.8 55.5 16.7 7.2 4.6 15.9

Gujarat 6389 5.7 73.3 0.2 9.1 4.2 13.3

Haryana 6303 4.8 67.7 12.4 13.8 3.2 3.0

Himachal Pradesh 4535 4.3 62.9 15.9 3.2 4.3 13.8

Jharkhand 2068 4.0 76.6 7.5 5.6 6.3 3.9

Karnataka 4708 5.4 53.1 21.1 9.9 6.5 9.3

Kerala 6609 6.6 72.8 7.5 11.4 6.2 2.1

Madhya Pradesh 1959 3.9 49.0 16.9 11.7 5.1 17.3

Maharashtra 5162 4.3 59.1 9.5 16.4 4.5 10.5

Orissa 2290 3.8 64.0 9.8 3.6 5.6 17.0

Punjab 5001 5.2 61.3 15.6 12.3 4.1 6.7

Rajasthan 2672 4.0 61.5 12.8 10.9 7.4 7.4

Tamil Nadu 6592 6.0 61.0 17.0 11.6 5.7 4.7

Uttar Pradesh 1775 4.8 60.6 16.7 14.9 5.1 2.8

Uttarkhand 4021 3.6 67.6 16.7 9.5 4.5 1.7

West Bengal 2091 3.1 58.6 7.9 10.5 3.6 19.4 Source (Basic Data): Reserve Banks of India, State Finance: A Study of State Budgets (various years).

30

4.4. Concluding Remarks

Sales tax is by far the most important own tax revenue source in Tamil Nadu. It relative

to GSDP is 6.92 percent in 2014-15BE. In fact Tamil Nadu ranks first in per capita sales

tax revenue among the major Indian States. The share of state excise in the total own tax

revenue of Tamil Nadu declined from 18.5 percent in 2009-10 to 7 percent in 2014-15

due to the abolition of vend fees and additional vend fees for malt liquor and foreign

liquor and spirits. Another concern is the buoyancies of almost all taxes in 2014-15 were

less than that in 2003-04.

31

Chapter 5

Growth and Composition of Expenditures

This Chapter analyzes the trends and composition of Government Expenditures. It also

looks at the composition of revenue expenditures and compares the level of expenses in

Tamil Nadu with that of other major Indian States.

5.1 Composition of Budget Expenditure

The total expenditure of government of Tamil Nadu stood around 16 percent of GSDP in

almost all years shown in Table 5.1 (except in a few years). The revenue expenditure

accounted for 92 percent in 2002-03 and its share declined to 82.9 percent in 2014-15

while the share of capital expenditure increased from 8.3 percent to 17.1 percent. Relative

to GSDP, the revenue expenditure declined from 15 percent in 2002-03 to 13.5 percent in

2014-15 while the capital expenditure increased from 1.4 percent to 2.8 percent.

Table 5.1: Composition of Budget Expenditure

Expenditures 2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

2010-

11

2011-

12

2012-

13

2013-

14

2014-15

Rs. Crore

Revenue

Expenditure 25688 25271 29155 32009 38265 42975 53590 59375 72916 83838 97067 116564 127100

Capital

Expenditure 2324 4600 5650 5094 8207 9244 11934 10863 14688 21819 19337 22662 26208

Total

Expenditure 28012 29871 34805 37103 46472 52219 65524 70238 87604 105657 116404 139226 153308

As % of Total Expenditure

Revenue

Expenditure 91.7 84.6 83.8 86.3 82.3 82.3 81.8 84.5 83.2 79.3 83.4 83.7 82.9

Capital

Expenditure 8.3 15.4 16.2 13.7 17.7 17.7 18.2 15.5 16.8 20.7 16.6 16.3 17.1

Total

Expenditure 100 100 100 100 100 100 100 100 100 100 100 100 100

As % of GSDP

Revenue

Expenditure 15.0 13.3 13.3 12.4 12.3 12.2 13.4 12.4 12.5 12.6 13.0 13.7 13.5

Capital

Expenditure 1.4 2.4 2.6 2.0 2.6 2.6 3.0 2.3 2.5 3.3 2.6 2.7 2.8

Total

Expenditure 16.4 15.7 15.9 14.4 15.0 14.9 16.3 14.6 15.0 15.9 15.6 16.4 16.3


5.2. Trends and Composition of Revenue Expenditures Table 5.2 shows that about 57 percent of Tamil Nadu’s total revenue expenditure outlay

was on development services. During 2002-03 to 2014-15, the proportion of outlay on

social services increased from 31.3 percent to 37.7 percent while the proportion of outlay

on economic services declined from 24.7 percent to 20 percent (Chart 5.1). The decline

in the proportion of outlay on economic services was taken place mainly under irrigation,

32

flood and drainage and power services. The increase in the proportion of outlay on social

services was mainly due to increase in the outlay on urban development and social

security and welfare (Table 5.3).

Table 5.2: Revenue Expenditures: Development Vs Non Development Expenditures

(As % of Total Revenue Expenditures)

Year General

Services

Grants

to LBS

Non-

Development

Social

Services

Economic

Services

Development

Expenditures

2002-03 38.0 6.0 44.0 31.3 24.7 56.0

2003-04 41.4 6.0 47.4 34.6 18.0 52.6

2004-05 40.6 6.8 47.4 33.8 18.8 52.6

2005-06 40.3 6.5 46.8 35.5 17.7 53.2

2006-07 38.9 6.4 45.3 34.8 20.0 54.8

2007-08 36.9 8.2 45.1 36.9 18.0 54.9

2008-09 34.3 7.5 41.8 40.3 17.9 58.2

2009-10 34.0 6.5 40.5 38.7 20.3 59.0

2010-11 35.2 8.0 43.2 40.0 16.8 56.8

2011-12 34.1 8.7 42.9 40.5 16.7 57.1

2012-13 33.0 9.0 42.0 40.0 18.0 58.0

2013-14 32.1 8.8 40.9 40.1 19.0 59.1

2014-15 33.0 9.6 42.6 37.7 20.0 57.7


The proportion of outlay on non-development services declined marginally from 44

percent in 2002-03 to 42.6 percent in 2014-15 (Table 5.2). The decline in proportion has

taken place mainly under interest payment and debt servicing. The interest payment and

debt servicing relative to GSDP declined from 2.4 percent in 2002-03 to 1.6 percent in

2014-15 (Chart 5.2). It is noticed that the share of compensation and assignments to local

body governments in Tamil Nadu increased from 0.9 percent of GSDP in 2002-03 to 1.3

percent in 2014-15.

33

Chart 5.1: Composition of Revenue Expenditures (%)

In terms of absolute amount Tamil Nadu has provided the highest compensation to local

bodies among the major India states in 2012-13RE. It also ranks second in terms of the

compensation to LBs as percent of revenue expenditure as well as revenue receipts, next

only to Assam. However, it ranks fifth in terms of the compensation to LBS as percent of

own tax revenues among the major states in the country (Table 5.4).

Chart 5.2: Interest Payment and Grants to Local Bodies as Percent of GSDP

34

Table 5.3: Composition of Revenue Expenditures (As % of GSDP)

Services 2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

2010-

11

2011-

12

2012-

13

2013-

14

2014-

15

Total Revenue

Expenditure

15.0 13.3 13.3 12.4 12.3 12.2 13.4 12.4 12.5 12.6 13.0 13.7 13.5

General Services 5.7 5.5 5.4 5.0 4.8 4.5 4.6 4.2 4.4 4.3 4.3 4.4 4.5

Organs of State 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.2 0.1 0.1 0.1

Fiscal Services 0.2 0.3 0.3 0.3 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Interest Payment &

Debt ser.

2.4 2.5 2.4 1.9 1.9 1.9 1.6 1.4 1.4 1.4 1.5 1.5 1.6

Administrative Services 1.0 0.9 0.9 0.8 0.7 0.7 0.8 0.8 0.7 0.8 0.8 0.8 0.7

Pensions & Misc.

Gen.Ser.

2.0 1.8 1.8 1.9 1.8 1.7 1.9 1.8 2.0 1.9 1.8 1.9 1.9

Grants to local bodies 0.9 0.8 0.9 0.8 0.8 1.0 1.0 0.8 1.0 1.1 1.2 1.2 1.3

Social Services 4.7 4.6 4.5 4.4 4.3 4.5 5.4 4.8 5.0 5.1 5.2 5.5 5.1

General Education 2.3 2.1 2.0 1.8 1.9 1.9 2.1 2.2 2.2 2.2 2.2 2.3 2.2

Technical Education 0.1 0.1 0.1 0.1 0.1 0.0 0.1 0.0 0.1 0.1 0.1 0.1 0.1

Medical & Public

Health

0.6 0.5 0.5 0.4 0.4 0.4 0.5 0.5 0.6 0.5 0.6 0.6 0.6

Family Welfare 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Water Supply &

Sanitation

0.1 0.1 0.1 0.0 0.0 0.0 0.1 0.0 0.1 0.0 0.0 0.1 0.0

Housing 0.0 0.1 0.0 0.1 0.2 0.1 0.3 0.1 0.1 0.1 0.1 0.1 0.1

Public Works 0.1 0.0 0.1 0.0 0.1 0.1 0.1 0.0 0.0 0.1 0.1 0.0 0.0

Urban Development 0.1 0.1 0.1 0.1 0.2 0.2 0.3 0.4 0.1 0.1 0.2 0.3 0.2

Welfare of

SCs/STs/OBCs

0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.2 0.3 0.3 0.3 0.3

Labour & Employment 0.1 0.1 0.0 0.0 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.1 0.1

Social Security &

Welfare

0.4 0.4 0.4 0.5 0.5 0.7 0.7 0.6 0.6 1.0 1.1 1.1 1.0

Nutrition 0.3 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3

Relief (Natural

Calamities)

0.2 0.2 0.5 0.6 0.0 0.1 0.3 0.0 0.2 0.2 0.1 0.1 0.0

Economic Services 3.7 2.4 2.5 2.2 2.5 2.2 2.4 2.5 2.1 2.1 2.4 2.6 2.7

Agri and Allied 0.7 0.6 0.6 0.5 0.6 0.5 0.6 0.7 0.5 0.5 0.8 0.8 0.8

Rural Employment 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.1 0.0 0.0 0.1

Other Rural

Devel.Programmes

0.2 0.3 0.1 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Irrigation, Flood and

Drainage

0.3 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1

Power 1.2 0.2 0.5 0.4 0.4 0.3 0.3 0.3 0.2 0.3 0.3 0.3 0.5

Village & Small

Industries

0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Inudsties 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.1 0.1 0.2

Transport and

Communication

0.2 0.2 0.3 0.2 0.3 0.2 0.2 0.2 0.1 0.1 0.2 0.2 0.2

Civil Supplies 0.7 0.4 0.5 0.5 0.7 0.6 0.7 0.8 0.7 0.8 0.7 0.6 0.6

GSDP at Current Prices 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0


35

Table 5.4: Compensation to LBs in Selective Indian States: 2012-13RE

States Rs. Crore % of Revenue

Expenditure

% of Revenue

Receipts

% of Own

Tax Revenues

Andhra Pradesh 303 0.28 0.28 0.48

Assam 4016 10.74 10.49 48.67

Bihar 4 0.01 0.01 0.03

Chhattisgarh 854 2.83 2.64 6.49

Gujarat 164 0.23 0.22 0.31

Haryana 225 0.55 0.59 0.93

Himachal Pradesh 7 0.04 0.04 0.14

Jharkhand 1 0.00 0.00 0.01

Karnataka 5011 5.97 5.90 9.37

Kerala 4165 8.06 8.63 13.14

Madhya Pradesh 4235 6.48 5.90 14.32

Maharashtra 1490 1.03 1.03 1.48

Orissa 646 1.51 1.42 4.22

Punjab 772 1.75 1.97 3.18

Rajasthan 338 0.50 0.49 1.12

Tamil Nadu 9233 9.11 9.07 12.55

Uttar Pradesh 6245 4.13 3.99 10.33

Uttarkhand 848 5.30 4.93 14.01

West Bengal 560 0.66 0.78 1.73


Table 5.5 shows the economic classification of revenue expenditures for recent years.

Salaries and wages and pension payments amounted to 41 percent of total revenue

expenditure in 2012-13. Interest payments accounted for nearly 11 percent while

subsidies for about 10 percent.

Table 5.5: Economic Classification of Revenue Expenditures

Items 2010-11 2011-12 2012-13 2010-11 2011-12 2012-13

Rs. crore As % of Total Revenue

Expenditure

Interest Payment 7913 9418 10836 10.9 11.2 11.2

Subsidies 7739 8698 9592 10.6 10.4 9.9

Wages and Salaries 23825 26797 27597 32.7 32.0 28.4

Pension Payments 11635 12277 12494 16.0 14.6 12.9

Others 21804 26647 36548 29.9 31.8 37.7

Total Revenue

Expenditure 72916 83838 97067 100.0 100.0 100.0


36

5.3. Debt Portfolio of Tamil Nadu Government

Tamil Nadu has consciously diversified its debt portfolio to spread out risk and minimize

the borrowing costs. The current debt portfolio includes: open market borrowings, loans

through financial institutions, receipts form National Small Saving Scheme, contribution

ot State Provident Fund, and loans from government of India. The composition of debt

portfolio of Tamil Nadu State Government in 2013-14 RE is shown in Table 5.6.

Table 5.6: Composition of Debt Portfolio of Tamil Nadu Government (2013-14RE)

Sl.

No. Source Rs. Crore % Interest Rate

1 Open Market Loans 96432 58.3 8.23%

2 Loans from National Small Savings Fund 24177 14.6 9.08%

3 Loans from Financial Institutions 6577 4.0 9.74%

4 Loans from Government of India of which 11782 7.1 8.16%

Loans for Externally Aided Projects 6960 4.2 3.23%

5 Provident Funds etc 14202 8.6 8.70%

(1-5) Budgetary Borrowings 153171 92.6 8.29%

6 Reserve Funds and Deposits 12288 7.4

Total Liabilities 165459 100.0 8.29%


It is noticed from Table 5.6 that external loans are the cheapest source of borrowing

followed by other loans from government of India. But these options are limited by the

overall limits of external agencies and Government of India, open market borrowings are

the next cheapest source. All other sources are either statutory liabilities or high cost ad

hoc loans. The total outstanding liabilities of the State stood around Rs. 165460 crore

which was about 19.5 percent of GSDP. This is well within the norms prescribed by the

Thirteenth Finance Commission and the Tamil Nadu Fiscal Responsibility and Budgetary

Management Act, 2003.

5.4. Interstate Comparison

Tamil Nadu compares well with other major States in per capita revenue expenditure. It

ranks second in terms of the high per capita revenue expenditure, next only to Uttarkhand

(Table 5.7)

37

Table 5.7: Composition of Revenue Expenditure in Major States (2012-13RE)

States

Revenue Expenditure Composition of Revenue

Expenditure (%)

Per Capita

(Rs.)

As % of

GSDP

General

Services

Social

Services

Economic

Services

Andhra Pradesh 12546 14.3 31.3 41.5 27.0

Assam 12000 26.4 28.5 41.6 19.1

Bihar 6760 21.5 33.1 42.9 24.0

Chhattisgarh 11602 19.6 23.1 45.7 28.4

Gujarat 11931 10.7 35.1 41.8 22.8

Haryana 15705 11.9 29.9 39.8 29.7

Himachal Pradesh 23498 22.2 38.9 38.2 22.8

Jharkhand 8746 17.1 30.9 40.7 28.4

Karnataka 13902 16.0 25.2 39.0 29.8

Kerala 14789 14.8 41.1 36.4 14.4

Madhya Pradesh 8823 17.5 28.7 40.5 24.3

Maharashtra 12565 10.5 33.9 45.5 19.5

Orissa 9969 16.7 34.9 38.1 25.5

Punjab 14776 15.4 42.7 31.1 24.4

Rajasthan 9740 14.7 31.1 39.8 28.6

Tamil Nadu 14877 13.6 31.6 39.3 20.0

Uttar Pradesh 7326 19.7 41.1 39.1 15.6

Uttarkhand 15723 14.0 35.5 43.3 15.9

West Bengal 9401 13.8 40.9 42.5 15.9


5.5 Concluding Remarks

During 2002-03 to 2014-14, the share of capital expenditure in the total expenditure was

almost doubled, that is, it increased from 8.3 percent to 17.1 percent. Nearly 58 percent of

revenue expenditure was on development services in 2014-15 (38 percent on social

services and 20 percent on economic services). Over the years, the share of social

services increased due to increased outlay on urban development and social security and

welfare while the share of economic services declined mainly due to fall in the outlay on

irrigation, flood and drainage and power. Interestingly Tamil Nadu provides the highest

compensation of Local Bodies among the major Indian States. Salaries and pension

amounted to 41 percent of total revenue expenditure while interest payments and

subsidies accounted for about 11 percent and 10 percent respectively.

38

Chapter 6

A Note on Public Sector Enterprises

This Chapter briefly reviews the performance of two major public sector enterprises in

Tamil Nadu, namely electricity utilities and state transport utilities. Section 6.1 reviews

the performance of the former while Section 6.2 reviews the performance of latter.

6.1. Electric Utility Sector

Tamil Nadu’s physical performance in the electric utility sector is creditable.

All villages in the state have been electrified, compared with the All- India figure

of 84 percent. 98 habitations in remote forest areas are to be covered by solar

power soon.

The thermal plants plant load factors are above the national average.

Her T&D loss of 16.95 percent in 2011-12 was well below the loss for India of

22.39 percent; The AT&C loss of 17.88 was also below the national average

Tamil Nadu’s per capita annual electricity consumption is 1065 kWh (734 kWh

for India).

Tamil Nadu energized 1,990,259 pump sets in March 2009 , nearly one-fifth of

pump sets in India.

Tamil Nadu’s achievements in power generation from renewable energy sources

have been widely acclaimed.

Tamil Nadu has initiated many reform measures in the power sector. The Tamil Nadu

Electricity Board (TNEB) was restructured on November 1, 2010 into 3 companies:

TNEB Ltd, Tamil Nadu Generation and Distribution Corporation Ltd (TANGEDCO),

and Tamil Nadu Transmission Corporation Ltd (TANTRANSCO). It created Tamil Nadu

Electricity Regulatory Commission for determination of electricity tariffs. There are

many independent power producers in the State. Multi-year tariffs, and competitive

bidding for tariffs from independent power producers are followed. The State has

participated in Government of India’s rural electrification and restructured accelerated

power development programmes. It has undertaken many demand side management

programmes including adoption of increasing block tariff for large domestic consumers,

stimulus for adoption of energy efficient lamps, replacement of energy inefficient pump

sets by energy efficient pump sets, adoption of energy conservation building codes for

large projects, and participation in Perform, Achieve and Trade scheme for large

designated consumers of Bureau of Energy Efficiency.

The major concern is the growing financial losses. The average revenue – average cost

ratio of 0 .6863 is below the ratio for India of 0.7782 in 2011-12. The average tariff in

Tamil Nadu of Rs 352.73 was below the All -India figure of Rs 379.56. The Planning

39

Commission Annual Report 2011-12 on the working of State Public Undertakings and

EDs estimates the losses with subsidy at Rs.8144 crore and without subsidy at Rs 10426.

In order to enable TANGEDCO to avail borrowings during the financial year 2012-13,

the Government of Tamil Nadu has provided Government guarantee of Rs. 10,000 crore

for transition loans i.e., Rs. 5,000 crore each from Rural Electrification Corporation

Limited (REC) and Power Finance Corporation Limited (PFC). In addition, Government

of Tamil Nadu has provided guarantee of Rs. 6000 crore to Tamil Nadu Power Finance

and Infrastructure Development Corporation Limited (TNPFC) for raising funds through

issue of bonds for onward lending to TANGEDCO. In the process of implementing the

Financial Restructuring Plan, Government guarantee of Rs. 18,493.45 crore has been

sanctioned to TANGEDCO.8

6.2. State Road Transport Utility

Tamil Nadu fares well in terms of physical performance indicators such as fuel

efficiency, vehicle productivity, and low average vehicle age. However, its financial

performance has been poor. In 2011-12, all six road transport corporations incurred losses

aggregating to Rs 1291 crore.

Every effort must be made to improve operational efficiency of SRTUs. Even then their

social obligations may result in losses. There are a few options for improving the

financial sustainability of the SRTUs. They are:

Annual revisions of bus fares

Allow pass –through for increase in labour, diesel and material costs, twice a year

Central government may reimburse 50% of the costs of concessions related to rural/

remote area connectivity and subsidies for merit goods based on nationally agreed

social goals

Environmental considerations justify lower price for diesel. IT based payment

mechanism be evolved

The taxes – excise duty on motor vehicles and spare parts, motor vehicle tax, tax on

diesel etc- may be lowered in view of the social and environmental benefits of bus

transportation;

Loans at lower interest rates may be arranged for SRTUs subject to the condition

that they improve their operational efficiency in a time bound manner.

8 Total outstanding guarantees of State Government in (Rs. billion) since 2002-13 are given below:

Year

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

2010-

11

2011-

12

Guarantees 119.2 108.2 77.8 63.3 58.5 56.1 54.2 59.6 n.a 221.2

40

Chapter 7

Devolution to Rural and Urban Local Bodies

7.1 Introduction

In contemporary analysis of devolution reference is frequently made to the three

Fs, namely, functions, finances and functionaries, more precisely their devolution to

PRIs. One of the tests of devolution is the degree of autonomy with which these three

components are made available to PRIs. By implication the success of decentralization

is thought to be dependent on whether PRIs have access to adequate resources as well as

the staff who are required to carry out the functions assigned to each tier in the system.

Also considered is the specificity in the delegation of functions to Panchayats. Before

taking up the detailed discussion of the issues mentioned above it is necessary to describe

the constitutional position which will serve as a useful background to the study.

The relevant Articles are 243(G) and 243(H). The former states as follows:

“Subject to the provisions of this Constitution the legislature of a state may, by law

endow the Panchayats with such powers and authority as may be necessary to enable

them to function as institutions of self-government and such law may contain provisions

for the devolution of powers and responsibilities upon panchayats, at the appropriate

level, subject to such conditions as may be specified therein, with respect to –

a) the preparation of plans for economic development and social justice,

b) The implementation of schemes for economic development and social justice as

may be entrusted to them including those in relation to the matters listed in the

Eleventh Schedule.

Article 243 (H) reads as follows:

“The legislature of a state may, by law-

a) authorize a Panchayat to levy, collect and appropriate such taxes, duties,

tolls and fees in accordance with such procedure and subject to such limits;

b) assign to a Panchayat such taxes, duties, tolls and fees levied and collected

by the State government for such purposes and subject to such conditions

and limits;

c) provide for making such grants-in-aid to the Panchayats from the

Consolidated Fund of the State and;

d) Provide for constitution of such funds by crediting all moneys received

respectively, by or on behalf of the Panchayats and also for the withdrawal

of such moneys there from, as may be specified in the law.”

41

In addition Art.243(I) makes it incumbent upon states to constitute a quinquennial

Finance Commission to review the financial position of the Panchayats and “to make

recommendations to the Governor as to –

a) the principles which should govern

i) the distribution between the State and the Panchayats of the net

proceeds of taxes, duties, tolls and fees leviable by the State, which

may be divided between them under this part and the allocation

between the Panchayats at all levels of their respective shares of such

proceeds;

ii) the determination of the taxes, duties, tolls and fees which may be

assigned to or appropriated by the Panchayats;

iii) the grant-in aid to the Panchayats from the Consolidated Fund of the

State;

b) the measures needed to improve the financial position of the Panchayats;

c) any other matter referred to the Finance Commission by the Governor in

the interests of sound finance of the Panchayats”

7.2 Highlights of State Finance Commission Recommendations – Tamilnadu

The highlights of the recommendations of the first two State Finance Commission

Reports in Tamilnadu is given below:

First State Finance Commission

Tamil Nadu Government follows the principle of global sharing transmitting

across the broad buoyancy instead of shared individual taxes. This makes the level of

devolution more predictable since the total revenues do not fluctuate as much as proceeds

from each tax item. The major recommendations including the financial devolution were

accepted and implemented by the State Government. The funds devolved to the local

bodies have been grouped by the State Finance Commission under two headings viz Pool

–A and Pool-B.

Under Pool A, assigned revenue from surcharge on stamp duty, Local Cess, Local

Cess Surcharge and 90 per cent of the entertainment tax based on place of origin of the

tax is distributed to the Rural Local Bodies.

Pool B (Global Sharing), the State Finance Commission has grouped all the State

taxes except entertainment tax and has recommended that 8 % of this should be shared

with the local bodies in 1997-98. State government is devolving only 8 per cent of its

revenue mobilized from state own tax revenue to local bodies.

42

Out of 100 per cent global sharing prescribed under Pool B for each year, 15 per cent

shall be set apart as Reserve, Equalisation and Incentive Funds, remaining 85 per cent is

shared among the rural and urban local bodies at the ration of 55:45. The 55 % allocated

to the rural local bodies were shared between Village Panchayats, Panchayat Unions and

District Panchayats.

Allocation between rural local bodies is shared between Village Panchayats,

Panchayat Union and District Panchayats in the ratio of 47:45: 8.

The Equalisation and Incentive Grant is shared at the ratio of 60:40 among the rural

and urban local bodies. The Equalisation and Incentive Grant is unique in the sense that

financial and infrastructurally weak local bodies are assisted to bring about an equitable

development. Therefore, it also extended to areas prone to natural calamities.

In 1999-2000 the Equalisation and Incentive Grant were distributed to the Village

Panchayats and Panchayat Unions on the basis of the following purposes.

Payment towards electricity charges by weaker Village Panchayats

Creation of infrastructure facilities in less development Panchayats

For Weaker Panchayat Union which could not meet the administrative expenses.

Repair of 2000 Noon Meal centers

Incentives for collection of House Tax

Incentives for Village Panchayats which are maintaining common community,

burial and burning ground for use of all communities.

Awards for best performing Village Panchayats, Panchayat Unions and District

Panchayats.

Further House Tax matching incentive is extended to the Village Panchayats at the rate of

Rs.2 for every one rupee of house tax collected. It may be emphasized that these transfers

are being done without transferring the cost of the Government Employees to the local

bodies under Rural Development Department and other key sector Departments.

20 per cent of the SFC devolution to the Gram Panchayats has been reserved for

capital works.

Apart from State Finance Commission (SFC) devolution, various plan, non-plan and

discretionary grants and government loans etc are transferred from State government to

local bodies every year.

Non plan discretionary grants to the local bodies in Tamilnadu are, maternity

grants, social education grants, etc and plan grants such as Anna Marumalarchi Thittam,

Namakku Name Thittam, Golden Jubilee water supply scheme grants to agency functions,

schemes relating to Panchayat raj institutions etc., These funds are passed on to the local

bodies outside the devolution package recommended by the SFC.

43

Table 7.1: First State Finance Commission Grant

Rs. in crores

Year Village

Panchayats

Panchayat

Unions

District

Panchayats

Total

1997-98 191.79 146.55 30.95 369.29

1998-99 240.19 180.01 33.52 453.72

1999-00 240.48 183.87 30.71 455.06

2001-01 307.34 231.69 38.76 577.79

2001-02 81.75 87.93 17.76 187.44

Total 1061.55 830.05 151.70 2043.30

Second State Finance Commission (SSFC)

SFC recommended a change in the Pool-B as follows. “The Commission recommends

that the approach of global sharing is the proper mechanism for devolution from State to

local bodies. The percentages of global sharing from out of SOTR after excluding

Entertainment Tax shall be as under:

2002-03 8%

2003-04 8%

2004-05 9%

2005-06 9%

2006-07 10%”.

But the state government kept the SFC grants as 8 % only.

Table 7.2: Second State Finance Commission Grant

Rs. in crores

Year Village

Panchayats

Panchayat

Unions

District

Panchayats

Total

2002-03 416.25 278.73 47.11 742.09

2003-04 355.62 266.89 49.01 671.52

2004-05 398.26 400.43 64.15 862.84

2005-06 499.27 426.25 69.23 994.75

2006-07 614.71 524.81 85.24 1224.76

Total 2284.11 1897.11 314.74 4495.96

Third State Finance Commission

The State Government constituted the Third State Finance Commission during December

2004 to assign revenues to the panchayat institutions in the state. The major

recommendations included

- to increase the devolution grant from existing 8 per cent to 9 per cent of the

State’s Own Tax revenue in 2007-08. The devolution grant is to be shared

between the rural and urban local bodies in the ration of 58:42.

44

- The 58 per cent devolution grant to rural local bodies to be distributed among

the three tiers of PRIs, namely village panchayats, block panchayats and

district panchayats in the ratio 60:32:8 from 2007-08.

- the allocation of SFC funds to the Village Panchayats based on the criteria

adopted in the earlier years was not sufficient for many Panchayats to meet

the minimum payment of electricity charges and water charges. Hence the

Government ordered that the village Panchayat’s share will be raised to 60 per

of the devolution grant allocated to PRIs.

Table 7.3: Third State Finance Commission Grant

(Rs.in crores) Year Village

Panchayats

Panchayat

Unions

District

Panchayats

Total

2007-08 950.15 506.75 126.69 1583.59

2008-09 1029.86 549.26 137.32 1716.64

Total 1980.01 1056.01 264.01 3300.0

7.3 Assigned Revenues

a. Local Cess and Local Cess Surcharge:

Section 167 of the Tamil Nadu Panchayats Act, 1994 provides for the levy of

local cess at the rate of Re.1 on every rupee of land revenue realized in the State. The

total amount realized from this source was distributed entirely to Village Panchayats.

Similarly, Section 168 of the Act provides for the levy of local cess surcharge at such rate

which may be considered suitable but not less than Rs.5 on every rupee of land

revenue. The levy, collection and adjustment to Village Panchayats and Panchayat

Unions is done by Revenue Department in the districts.

Table 7.4: Assigned Revenues: Local Cess and Local Cess Surcharge*

(Rs. in crores) Year Local cess Local cess surcharge

1995-96 2.05 26.19

1996-97 2.13 24.26

1997-98 1.37 7.35

1998-99 2.81 14.20

1999-00 2.52 15.17

2000-01 5.94 29.96

2001-02 5.74 27.76

2002-03 5.10 26.03

2003-04 4.81 24.30

2004-05 1.42 7.07

2005-06 * 4.53 23.79

2006-07 * 3.41 18.33

* Source: Second and Third State Finance Commission Reports

45

b. Surcharge on Stamp duty on transfer of property

Under Section 175 of the Act, provision is made for crediting the proceeds under

surcharge on Stamp duty to Village Panchayats. This is adjusted in quarterly installments

by the Registration Department in the districts.

Table 7.5: Assigned Revenues: Surcharge on Stamp Duty * Year Surcharge on Stamp duty

(Rs. in crores)

1995-96 48.85

1996-97 49.79

1997-98 39.23

1998-99 60.48

1999-00 66.67

2000-01 112.92

2001-02 128.57

2002-03 191.04

2003-04 122.91

2004-05 153.62

2005-06 @ 63.87

2006-07 @ 74.10

* Source : Second and Third State Finance Commissions Reports

@ Source : District Collectors Report

c. Entertainment Tax

90% of the Entertainment Tax collected in rural areas is assigned to rural local bodies.

This is distributed between the Panchayat Unions and Village Panchayats in the ratio of

30:70 respectively by the Commercial Tax department in the districts.

Table 7.6: Assigned Revenues: Entertainment Tax Year Entertainment tax

(Rs. in crores)

1995-96 * 7.71

1996-97 * 7.73

1997-98 * 5.73

1998-99 * 9.50

1999-00 * 10.32

2000-01 * 0

2001-02 * 0

2002-03 * 1.58

2003-04 * 2.44

2004-05 * 5.27

2005-06 @ 0.59

2006-07 @ 0.88

* Source : Second State Finance Commission Report

Source: Third State Finance Commission Report

@ Source: District Collectors’ Report

46

d. Mines and Minerals

The quarry lease income from minor mineral is shared with local bodies. Previously, it

was with Revenue Department but subsequently it was entrusted to a separate department

called Geology and Mining. The department had issued instructions for adjusting the

amount at the end of April every year which means after the closure of the financial

year. From 2.10.2003, P.W.D. is operating the sand quarries and the income has gone to

Government Account. However the Seignorage fees have been apportioned to local

bodies.

Table 7.7: Assigned Revenues : Lease amount derived from Mines and Minerals

Year Lease amount derived from Mines and Minerals

(Rs. in crores)

2000-01 * 31.22

2001-02 * 35.08

2002-03 * 40.71

2003-04 * 39.62

2004-05 * 33.25

$ Source: Third State Finance Commission Report

e. Social Forestry Receipts

There was no statutory obligation for sharing the Social Forestry receipts till 1992

but the 73rd

Constitutional Amendment Act, had assigned the Social Forestry and Farm

Forestry to rural local bodies under Schedule - XI of the Constitution of India. The

proceeds of social forestry from 1997-98 to 1999-2000 have been ordered to transfer the

same to Panchayats. The Third State Finance Commission recommended to share the

social forestry receipts on 50:50 basis as per Government orders.

Table 7.8: Assigned Revenues : Social Forestry

Year Social Forestry

(Rs. in crores)

1993-94 *

8.75

1994-95 *

1995-96 *

1996-97 *

1997-98 *

6.92 1998-99 *

1999-00 *

2000-01 #

15.1643

2001-02 #

2002-03 #

2003-04 #

Source: * G.O.Ms.No.33, Environment & Forests (Forests .6) Dept. Dt.15.2.2000

Source: $ G.O.Ms.No.234, Environment & Forests (Forests .6) Dept. Dt.27.12.2005

Source: # G.O(2D).No.93, Environment & Forests (Forests .6) Dept. Dt.15.11.2007

47

7.4 Pooled Assigned Revenue from 2007-08

The Assigned Revenues of rural local bodies include the class of taxes and levies like

Entertainment Tax, levied under Entertainment Tax Act, 1939, surcharge on Stamp duty

levied under Tamil Nadu Panchayats Act, 1994 and Local Cess / Local Cess Surcharge

on land revenue levied under the Tamil Nadu Panchayats Act, 1994 are traditionally

collected by the concerned Government departments and adjusted directly to local bodies

by the District Collectors.

The system of adjusting Assigned Revenues to various rural local bodies through

adjustments leads to considerable delay in transferring the funds.

To ensure quick transfer, the Government have issued orders to pool the Assigned

Revenues. i.e. Local Cess, Local Cess Surcharge, Surcharge on Stamp Duty and

Entertainment Tax at State Level and to apportion the same to rural local bodies.

Accordingly Government allocated Rs.270 Crores for Pooled Assigned Revenue for the

year 2007-08. Out of this amount, Rs. 180 Crores had been released to all the Village

Panchayats, Panchayat Unions and District Panchayats on population basis and Rs. 90

Crores released to districts for Priority Schemes.

During 2008-09, Government allocated Rs.541.77 Crores for Pooled Assigned Revenue

out of this amount Rs.361.18 Crores has been released to all the Village Panchayats,

Panchayat Unions and District Panchayats on population basis and Rs.180.59 Crores

released to districts for Priority Schemes. During 2009-10, Government allocated

Rs.359.49 Crores for Pooled Assigned Revenue out of this amount Rs.179.745 Crores has

been released to all the Village Panchayats Panchayats Unions and District Panchayat on

population basis and Rs.179.745 Crores has been released to districts for Priority

Schemes.

Table 7.9 Pooled Assigned Revenue: Sources of Fund

Sl.

No.

Tax Rs. in Crores

1. Local Cess 6.34

2. Local Cess Surcharge 31.75

3. Surcharge on Stamp Duty 228.73

4. Entertainment Tax 2.50

Total 269.32

Source: G.O.Ms.No.168, RD & PR (C4) Department dated 4.10.2007

48

7.5 Urban Local Bodies

The 74th Constitutional amendment gave constitutional status to Urban Local Bodies (ULBs) and established a system of uniform structure, regular election, regular flow of funds through Finance Commission etc. As a follow up, the States are required to entrust these bodies with powers, functions and responsibilities so as to enable them to function as institutions of self-government. Consequent to the 74th amendment of the Constitution, the Government of Tamil Nadu amended the Tamil Nadu District Municipalities Act, 1920 for transferring the powers and responsibilities to ULBs in order to implement schemes for economic development and social justice including those in relation to the matters listed in the Twelfth Schedule of the Constitution.

7.5.1 Devolution of functions, functionaries and funds

Consequent to the 74th amendment of the Constitution, the Government of Tamil Nadu

amended the Tamil Nadu District Municipalities Act, 1920 for transferring the powers

and responsibilities to ULBs. Twelve out of 18 functions enlisted in the Twelfth Schedule

of the Constitution have been devolved to the Town Panchayats. As per the information

furnished (June 2010) by the Commissioner of Municipal Administration (CMA), 17

functions (except Fire Service) have been devolved to the municipalities and municipal

corporations. In respect of Chennai City Municipal Corporation, only 13 functions have

so far been devolved and the function of water supply was handled by the Chennai

Metropolitan Water Supply and Sewerage Board.

As of March 2011, functionaries were not transferred to the ULBs to carry out the

devolved functions. Government reported that plan and non-plan discretionary grants

were being transferred to the ULBs in addition to successive State Finance Commission

grants. These earmarked grants were intended for specific functions such as water supply,

roads, public health, street lighting, sanitation, etc. entrusted to the ULBs. The ULBs

were empowered to revise and levy local taxes such as Property / House Tax, Profession

Tax, etc. based on the recommendations of State Finance Commissions (SFCs), as

accepted by the Government and as per the Local Bodies Acts.

The major sources of finances of the urban local bodies include the State Finance

Commission Grants, State Plan Grants, Central Finance Commission Grants, Centrally

Sponsored Schemes Grants, Own Revenue, Assigned revenue and loans as given in the

Table below:

49

Table 7.10 Funds Flow mechanism in ULBs in Tamilnadu (Amount in Crores)

Nature of Funds 2006-07 2007-08 2008-09 2009-10 2010-11

Own Revenue 2834 1511 1742 1992 2174

Assigned Revenue 298 453 451 370 372

Grants 1709 2000 1944 2658 3969

Loans 151 114 353 428 636

It may be observed that the own revenue mobilisation by the ULBs in the state has come down

drastically from the 2006-07 figures which necessitates improved tax collection measures by these

ULBs. Assigned revenues by the State Government is indicating a fluctuating trend but the grants

received from GoI and State for various schemes has been showing an increase trend over the years.

However, the disturbing trend is that the loans availed by the ULBs has gone up by almost 4 times

during the period.

7.6 Central Finance Commissions:

Tenth Central Finance Commission Grant

The Tenth Finance Commission recommended an adhoc grant of Rs.71.83 Crores

annually from 1996-97 to 2000-01 for the rural local bodies in Tamil Nadu to take

up capital works which was the first time when a central finance commission touched the

local bodies.

While releasing the amount the Government had stipulated that the local bodies could

take up capital works from out of the Tenth Central Finance Commission’s grant by

suitable contribution from its general funds.

Table 7.11 : Tenth Central Finance Commission Grant

(Rs in crores)

YEAR Village

Panchayats

Panchayat

Unions

District

Panchayats

Total

1996-97 * 5.43 38.40 28.00 71.83

1997-98 * 19.13 38.70 14.00 71.83

1998-99 * 18.63 46.20 7.00 71.83

1999-00 * 33.78 32.32 5.75 71.85

Total 76.97 155.62 54.75 287.34

*Source : Second State Finance Commission Report.

50

Eleventh Central Finance Commission Grants

The 11th

central finance commission recommended grants to rural local bodies in

Tamil Nadu for Rs.9,322.36 lakhs per annum for five years from 2000-01 to 2004-

05. Out of this grant, Rs.519.12 lakhs per annum had been earmarked for maintenance

of accounts in rural local bodies. This grant was released for the maintenance of civic

services to Village Panchayats and Panchayat Unions in the ratio of 55 : 45 respectively

based on the population which are having a primary responsibility in the maintenance of

civic services by a suitable contribution from its general funds.

Table 7.12: Eleventh Central Finance Commission Grant

(Rs in crores)

YEAR Panchayat Unions Village Panchayats Total

2000-01 38.68 47.28 85.96

2001-02 38.68 47.28 85.96

2002-03 38.68 47.28 85.96

2003-04 40.68 53.38 94.25

2004-05 66.71 47.27 113.99

Total 223.63 242.49 466.12

Twelfth Central Finance Commission Grant

A total sum of Rs. 870 crores has been allotted to Tamil Nadu for the period from

2005-06 to 2009-10 under 12th Finance Commission Grant to rural local bodies. A sum

of Rs.174 crores was released to Village Panchayats and Panchayat Unions in the ratio of

80: 20 respectively in the year 2005-06 and the entire grant is released only to Village

Panchayats from the second instalment of funds in the year 2006-07 onwards. This grant

is to be utilized entirely for the O & M costs of water supply, street lighting and

sanitation.

Table 7.13: Twelfth Central Finance Commission Grant

(Rs in crores)

YEAR Panchayat

Unions

Village

Panchayats Total

2005-06 34.80 139.20 174.00

2006-07 17.40 156.60 174.00

2007-08 0.00 174.00 174.00

2008-09 0.00 174.00 174.00

2009-10 0.00 174.00 174.00

Total 52.20 817.80 870.00

51

Chapter 8

Conclusion

This study has reviewed the finances of Government of Tamil Nadu during 2002-03 to

2014-15. The analyzes of trends and compositions of various key fiscal indictors over the

years show:

1. Tamil Nadu’s record of resource mobilization is one of the best among the states

in the country. It ranks third in per capita revenue, next only to Himachal Pradesh

and Uttarkhand and it has the highest per capita own tax revenue among the major

States in the country. However, the own non-tax revenues are fairly low, However

there is scope for improving the resource mobilisation efforts through better tax

collection measures by the rural and urban local bodies apart from improving the

collection of user charges. This would also strengthen the revenue base in the

state.

2. While Tamil Nadu ranks first in per capita sales tax revenue, the share of state

excise in the total own tax revenue has declined over the years due to the

abolition of vend fees and additional vend fees for malt liquor and foreign liquor

and spirits.

3. Another concern is the buoyancy of almost all taxes in recent years are lower than

that in 2003-04 due to down turn of the economy.

4. The share of central transfers in the total revenue receipts of the State declined to

22 percent from 32 percent in early years of eighties, due to the changes in the

successive Finance Commissions recommendations and modified Gadgil formula

for allotting state plan assistance by the Centre and also due to State’s increased

own effort in resource mobilization

5. Tamil Nadu compares well with other States in per capita revenue expenditure. In

fact, it ranks second in per capita revenue expenditure. Nearly 58 percent of

revenue expenditure was incurred on development services. While salaries,

wages and pension amounted to 41 percent, interest payments and subsidies

together accounted or 21 percent of total revenue expenditure. Tamil Nadu ranks

first in providing the highest compensation to local bodies. As Tamil Nadu has the

largest number of Government employees, the forthcoming recommendations of

seventh pay commission may have a severe financial implication.

6. During 2002-03 to 2014-15, the GSDP at current prices grew at 15.3 percent per

annum while the revenue receipts and revenue expenditure grew at 16.4 percent

and 14.5 percent respectively. As a result, the revenue account showed surplus in

almost all years except in two years.

7. Interestingly, the share of capital outlay increased from 8.3 percent of total

expenditure to 17.1 percent (i.e., almost doubled).

8. Its fiscal deficit and outstanding liabilities relative to GSDP kept below the norms

prescribed in the FRBM Act, 2003.

9. The ongoing slowdown of the economy may result in low central tax buoyancy.

This in turn may affect the share of states in the central pool.

52

10. Growth of agriculture, which is highly volatile, is vital for food security in the

state and for providing livelihood for more than 50 percent of people. The state

needs to make necessary investments in this sector to ensure growth.

11. Tamilnadu is one of the few states that has Universal Public Distribution System

that involves huge subsidies. Efforts are needed to introduce the Targeted Public

Distribution System focusing on BPL families in the state. Another area that has

huge amount of subsidies is the electricity charges that needs to be increased at

regular intervals. In recent past steps have been initiated by the state to increase

the electricity tariff but more needs to be done in this area. There are many other

policies initiated by the Government that involves huge subsidies and is putting

burden on the State exchequer. The state needs to constitute a High Level

Committee to look into issues of subisidies in the State and come out with a

policy to Target the same to the people who are in need.

12. Manufacturing growth is also vital for generating employment opportunities. The

state needs more investments to ensuring uninterrupted power supply to

industries.

13. Contribution of cesses and surcharges to central government revenues increased

significantly over the years. But they are kept out of the purview of sharing with

the States under the recommendations of the Finance Commission as provided in

the 80th

Amendment.